Annual Report 2019

Habib Bank AG Zurich

Annual Report 2019

Habib Bank AG Zurich

Table of contents

Group key figures 2 Letter to shareholders 4 About us 5 Corporate governance 6 Management report 13

Consolidated financial statements of the Group Balance sheet 20 Off-balance sheet transactions 21 Income statement 22 Cash flow statement 24 Statement of changes in equity 26 Notes to the consolidated financial statements 28 Report of the Statutory Auditor 60

Financial statements of the Parent Bank Balance sheet 62 Off-balance sheet transactions 63 Appropriation of profit / coverage of losses / other distributions 63 Income statement 64 Statement of changes in equity 66 Notes to the parent bank financial statements 67 Report of the Statutory Auditor 82

Addresses 83

GROUP 1 Habib Bank AG Zurich

Group key figures

in CHF million Change in % to Balance sheet 31.12.17 31.12.18 31.12.19 31.12.18 Total assets 11'731 10'305 11'163 8.3% Equity 1'297 1'148 1'196 4.2% Advances customers 3'557 3'546 3'545 0.0% Customers deposits 9'393 8'422 8'584 1.9%

Change in % to Income statement 2017 2018 2019 2018 Total income1 333.1 305.3 407.7 33.5% Operating expenses -220.7 -224.4 -227.0 1.2% Operating result 85.9 -11.7 166.3 Group profit 60.5 79.7 91.5 14.9%

Change in % to Key figures and ratios 31.12.17 31.12.18 31.12.19 31.12.18 Number of offices 360 393 432 9.9% Number of employees 5'211 5'426 5'698 5.0% Return on equity (ROE) 2 4.7% 6.5% 7.8% Equity ratio 11.1% 11.1% 10.7% Cost / income ratio 66.3% 73.5% 55.7% Capital ratio 19.4% 19.5% 19.7% Liquidity coverage ratio 112.2% 115.5% 122.0% Leverage ratio 9.4% 9.7% 9.4%

1 Including "Gross result from interest operations", "Result from comission business and services", "Result from trading activities and the fair value option" and "Other result from ordinary activities" 2 Group profit as percentage of equity of average at year end

Customers deposits, in CHF million Equity, in CHF million Group profit, in CHF million

10000 9'393 1500 100 91.5 8'422 8'584 1'297 1'196 79.7 1'148 8000 1200 80 60.5 6000 900 60

4000 600 40

2000 300 20

0 0 0 31.12.17 31.12.18 31.12.19 31.12.17 31.12.18 31.12.19 31.12.17 31.12.18 31.12.19

Purely for ease of reading, the masculine form used in this document is intended to refer to both genders. This consolidated financial reporting is published in English only. Due to rounding, the numbers presented in this report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

2 GROUP Habib Bank AG Zurich

Waterfall in Uri in the Alps, Switzerland GROUP 3 Habib Bank AG Zurich

Letter to shareholders

It is our pleasure to present you the 52nd Annual Report of Habib Bank AG Zurich, based on the accounting principles issued by the Swiss Financial Market Supervisory Authority.

2019 has been a period of changes in the industry involving increased competition, ongoing digital adoption and a shifting economic environment. During the course of the year, we remained focused on building the capabilities needed to successfully meet our customers' expectations and to compete and grow well into the future. We further honed our strategy and invested in new digital capabilities and in our network. We also improved how we run the Group by simplifying processes and strengthening our cybersecurity and platform resiliency. By the grace of God, Habib Bank AG Zurichʼs operations delivered good results for 2019 while maintaining a strong capital base and high liquidity.

Considering FINMAʼs guidance 02/2020 regarding prudent distribution policy, the Board of Directors has proposed that the following appropriations should be made out of the profit for the year ending 31 December 2019 and the profit carried forward from last year, adding up to a distributable amount of CHF 57’667’129:

- Allocation to statutory retained earnings reserves CHF 1'300'000 - Allocation to voluntary retained earnings reserves CHF 13'000'000 - Distribution of dividend from distributable profit CHF 15'000'000 - Profit carried forward CHF 28'367'129

We would like to thank our clients for their loyalty and trust in 2019. We are also grateful to all of our employees for their ongoing commitment and contribution to the overall success of Habib Bank AG Zurich.

Dr. Andreas Länzlinger Muhammad H. Habib Mohamedali R. Habib Chairman of the Board of Directors President Group CEO

4 GROUP Habib Bank AG Zurich

About us

Habib Bank AG Zurich (hereinafter the "Bank" or "Parent Bank") was incorporated in Switzerland in 1967 and is privately owned. The Habib family has been actively involved in banking for over 75 years. Two family members, Mr. Muhammad H. Habib, President, and Mr. Mohamedali R. Habib, Group CEO, are members of General Management. Other members of the family are currently working their way up through the management ranks.

The Bank and Group are subject to the consolidated supervision of the Swiss Financial Market Supervisory Authority (FINMA). The Group has a strong capital base and liquidity ratios that are above industry standards. The Group also cooperates closely with various regulatory bodies and central banks in the countries in which it operates.

The Group places a strong emphasis on personalised service. This is deeply rooted in its core values of trust, integrity, commitment, respect, responsibility and teamwork as well as in its vision and mission statements:

Vision To be the most respected financial institution based on trust, service and commitment.

Mission To be the 'Bank of Choice' for family enterprises across generations.

With its Head Office in Zurich, the Bank has branch operations in Kenya and United Arab Emirates. The Bank has subsidiaries in Canada, Hong Kong, United Kingdom, United Arab Emirates, Pakistan, South Africa and Switzerland. The Groupʼs operations are supported by its own service companies. As of 31 December 2019, headcount totaled 5'698 staff distributed among 432 offices providing personalised services to our valued clients. The Group is active in commercial banking, retail banking, trade finance, wealth management and Islamic banking.

GROUP 5 Habib Bank AG Zurich

Corporate governance

Corporate governance Principles Board of Directors

Habib Bank AG Zurich is committed to responsible, value- The Board of Directors has ultimate oversight over Habib oriented management and control. Habib Bank AG Zurich Bank AG Zurich and its subsidiaries. Under the leadership complies with all relevant Swiss legal and regulatory require- of its Chairman, it decides on the strategy of the Group ments in terms of corporate governance. The governance based on the recommendations of General Management. It documents of Habib Bank AG Zurich constitute our primary is responsible for the overall direction, management, control guidelines regarding corporate governance and are based and financial reporting of the Group as well as for supervising on Article 716b of the Swiss Code of Obligations and the compliance with applicable laws, rules and regulations. Articles of Association of Habib Bank AG Zurich. The Board of Directors consists of five or more members, which are individually elected at the Annual General Meeting and is made up of non-executive and independent directors, all of whom have extensive experience in their respective fields of competence.

Members of the Board of Directors

Name Board of Directors Audit Committee Risk & Control Committee

Dr. Andreas Länzlinger Chairman Member Urs W. Seiler Vice-Chairman Member Member Roland Müller-Ineichen Member Chairman Ursula Suter Member Chairwoman Dr. Stephan Philipp Thaler Member Member

Dr. Andreas Länzlinger Professional history and education Swiss, born 1959 Andreas Länzlinger was elected to the Board of Directors of Habib Bank AG Zurich at the 2008 Annual General Meeting. He has been Chairman of the Board of Directors since 2013. Chairman of the Board of Directors Member of the Risk & Control Prior to and since joining the Board of Directors of Habib Bank AG Zurich, Andreas Länzlinger Committee has regularly represented and advised a number of Swiss banks in civil, criminal and regulatory matters, including in matters relating to FINMA supervision. He has conducted internal investi- gations, some under the indirect supervision of FINMA, at various Swiss financial institutions. His experience includes representing clients before foreign authorities (mainly in regulatory or criminal matters, with a focus on US authorities including the DOJ, SEC, Fed and FDIC). He has advised corporate clients in matters of compliance and corporate governance and holds various teaching engagements in this field. Andreas Länzlinger completed his studies in Law from the Uni- versity of Zurich in 1983 and was admitted to the Zurich Bar in 1986. He received his Doctorate in Law (Dr. iur.) from the University of Zurich in 1992.

6 GROUP Habib Bank AG Zurich

Urs W. Seiler Professional history and education Swiss, born 1949 Urs Seiler was elected to the Board of Directors of Habib Bank AG Zurich at the 2012 Annual General Meeting and was appointed Vice-Chairman of the Board in April 2015. He became a mem- Vice-Chairman of the Board ber of the Audit Committee and member of the Risk and Control Committee in 2013. of Directors Member of the Audit Committee From 2002 to 2012 Urs Seiler was a founding partner of Bugmann, Stocker, Seiler Capital Partners Member of the Risk & Control AG (based in Zurich), a company providing advisory services in the areas of capital markets, fi- Committee nance, general management consulting, real estate and corporate restructuring, including the take- over of directorships. He was Chairman of the Board of Directors of PBS Private Bank Switzerland Ltd. (he stepped down from this function in 2002). He was a member of the Board at the Republic New York Corporate (New York) and a member of the Executive Committee of the Republic Bank of New York (Switzerland) from 1998 to 1999. Prior to that, he spent 15 years at UBS AG, holding various top executive and senior management positions, including: Executive Vice President International, Chairman Emerging Markets (Europe, Africa, Middle East), and a member of the Group Management Board (he stepped down from this function in 1998). From 1970 to 1984 he worked for Credit Suisse (Zurich), serving as Vice-President in the foreign exchange division. He began his career at Bank of Nova Scotia (Toronto). His banking career has also included teaching as a lecturer at the Swiss Finance Institute in Zurich from 1986 to 1991. Urs Seiler completed his studies as a Swiss Certified Banking Expert in 1968.

Roland Müller-Ineichen Professional history and education Swiss, born 1960 Roland Müller-Ineichen was elected to the Board of Directors of Habib Bank AG Zurich at the 2018 Annual General Meeting and was appointed as Chairman of the Audit Committee. Member of the Board of Directors Chairman of the Audit Committee Since 2009 Roland Müller-Ineichen has served as an independent director on the board of directors of multiple Swiss and foreign companies and has developed and further enhanced his thorough understanding of corporate governance and the strategic and operating challenges of today’s banking industry. Prior to that, he worked for 12 years as lead partner in charge of financial and regulatory audits of national and international banks, securities dealers and fund management companies in the audit department of KPMG in Zurich. He joined KPMG Fides Peat in 1995 as Senior Manager and became a partner of KPMG Switzerland in 1998 and of KPMG Europe in 2006. Before joining KPMG, he progressed through various senior audit and executive management roles at Switzerland-based financial institutions. His experience in the financial and banking services industry provides the Board of Directors with valuable strategic, financial and banking business insights and comprehensive corporate governance and accounting expertise. Roland Müller-Ineichen is recognised as an audit expert by the Swiss Audit Oversight Authority (FAOA) and is a qualified financial expert. Roland Müller-Ineichen is a Swiss Certified Public Accountant and has been a member of EXPERTsuisse since 1990.

Ursula Suter Professional history and education Swiss, born 1954 Ursula Suter was elected to the Board of Directors of Habib Bank AG Zurich at the 2012 Annual General Meeting and has been Chairwoman of the Risk & Control Committee since its inception Member of the Board of Directors in 2013. Chairwoman of the Risk & Control Committee Ursula Suter spent most of her professional career with UBS. She was General Counsel of the Wealth Management & Business Banking Division from 2002 to 2009 with global responsibilities. Prior to that, she held various positions as a legal counsel. Since 1992, she has served as a judge at the Commercial Court of the Canton of Zurich. In 2011 she became a founding partner of LCR Services AG, a firm providing legal, compliance and regulatory services for financial institutions. Ursula Suter completed her studies in Law from the University of Bern in 1979 and was admitted to the bar in the same year.

GROUP 7 Habib Bank AG Zurich

Dr. Stephan Philipp Thaler Professional history and education Swiss, born 1962 Stephan Thaler was elected to the Board of Directors of Habib Bank AG Zurich at the Annual General Meeting in April 2015. He has been a member of the Audit Committee since 2015. Member of the Board of Directors Member of the Audit Committee Stephan Thaler joined the Swiss Life Group in 1999 as Director Marketing & Client Relationship and a member of the Management Committee of Swiss Life Asset Management. Since 2009 he has been the Chief Executive Officer of Swiss Life Investment Foundation (Zurich). From 1995 to 1998 he worked for American Express Services Europe Ltd. (Zurich), where he served in various management positions including Country Manager Switzerland for the Card Business and Director Consumer Services Group. Before joining the banking and insurance industry, he worked in the corporate sector for more than five years in various senior management roles, holding core responsibilities for marketing and product management strategies with an international scope in the fashion retail business. Stephan Thaler studied Economics, majoring in Business Administration and Marketing. He graduated with an MBA in 1986 and received his PhD in 1989 from the Uni- versity of Basel. He is a Certified Financial Planner (1999) and completed the Executive Program at Robert Kennedy College/University of Wales in 2006 and the Senior Management Program in Banking at the Swiss Finance Institute in 2009. He has attended various Board of Directors training programs.

Elections and terms of office Organisational principles and structure

In accordance with the Articles of Association, all members of According to the Articles of Association and the Organisational the Board of Directors are elected individually at the Annual Regulations, the Board of Directors meets as often as business General Meeting. The members of the Board of Directors requires, but at least four times per year. At every Board of are elected for a period of three years (the period from one Directors meeting, the President and the Group CEO provide ordinary Annual General Meeting to the next is considered to the Board of Directors with a business update, and each com- be one year). The members of the Board of Directors may be mittee chairperson provides the Board of Directors with an re-elected. The Board of Directors constitutes itself. It elects update on current activities of his or her committee as well from among its members the Chairperson and one or several as important committee issues. At least once per year, the Vice-Chairpersons. The term of office for the Chairperson and Board of Directors reviews its own performance as well as the Vice-Chairpersons coincides with the term of office as mem- performance of each of its committees. This review seeks to ber of the Board of Directors. The Board of Directors appoints determine whether the Board of Directors and its committees the members of the Board of Directors committees, their are functioning effectively. The committees (listed on page 6) respective chairpersons and the Group Company Secretary. At assist the Board of Directors in the performance of its duties. least one third of the members of the Board of Directors must meet the independence criteria.

8 GROUP Habib Bank AG Zurich

General Management

Habib Bank AG Zurich operates under a dual board struc- Under the leadership of the Group CEO, General Management ture, as mandated by Swiss banking law, which stipulates is entrusted with management and planning of the activities that no members of the Board of Directors may be members of the Group with respect to organisation, business develop- of General Management. The Board of Directors delegates ment and expansion. General Management is responsible for the management of the business to General Management the direction of day-to-day operations of the Group and bears and General Management comprises at least three members overall responsibility for decisions and instructions issued in appointed by the Board of Directors. this regard.

Members of General Management

General Management consists of two members of the Habib members of General Management have residency in Switzer- family and three non-family members. The majority of the land.

Name Function

Muhammad H. Habib President Mohamedali R. Habib Group CEO Rajat Garg Member of General Management and Head of Developed Markets Anjum Iqbal Member of General Management and Head of Emerging Markets Walter Mathis Member of General Management and Head of Shared Services

Muhammad H. Habib Professional history and education Swiss, born 1959 Muhammad H. Habib became a member of General Management at Habib Bank AG Zurich in 1992. He was appointed President & Chief Executive Officer in February 2011. President Muhammad H. Habib’s career in banking comprises close to four decades of experience. He began his career in 1981 in Dubai, where he went through extensive training in order to gain the expertise, nuanced understanding, and enhanced knowledge of managing a bank and navigating the financial industry. This was an enriching journey spanning 11 years. In 1992, he joined the General Manage- ment team. His responsibilities encompassed UAE, Africa, UK, North America, and Switzerland. Under his leadership, the Bank has expanded into several new territories, including South Africa (1995) and Canada (2001). In 1996, he was promoted to the position of Joint President, and sub- sequently became the President of the Bank. Muhammad H. Habib completed his studies at the College de Leman in Geneva, Switzerland, and earned his degree in Business Administration from Babson College in Wellesley, Massachusetts (USA).

Mohamedali R. Habib Professional history and education Canadian, born 1964 Mohamedali R. Habib became a member of General Management serving as Joint President of Habib Bank AG Zurich and Divisional Head responsible for the entire banking business in Asia in Group CEO 2011 and was appointed Group Chief Executive Officer in 2016.

Mohamedali R. Habib has served at Metropolitan Bank since 1999 and in 2004, was appointed as the Executive Director and served till 2011. Thereafter he continued as non-executive director. Mohamedali R. Habib was appointed as a Director and Chairman of the Board of Habib Bank AG Hong Kong in November 2006. In 2016 he was elected as Chairman of the Board of Directors of Habib Metropolitan Bank Limited, a subsidiary of Habib Bank AG Zurich. Between 2012 and 2016 he has also served as a member of the Board of Directors of HBZ Bank Limited, another subsidiary of Habib Bank AG Zurich based in South Africa. Before joining Habib Bank AG Zurich, in 1996, he worked in the corporate sector for 10 years in various executive roles as well as certain BOD level positions.Mohamedali R. Habib graduated in Business Management – Finance from Clark University, Massachusetts (USA) in 1987. He holds a post- graduate diploma in General Ma- nagement from Stanford – National University of Singapore and is qualified as a Certified Director from the Pakistan Institute of Corporate Governance, Pakistan.

GROUP 9 Habib Bank AG Zurich

Rajat Garg Professional history and education Singaporean, born 1963 Rajat Garg became a member of General Management of Habib Bank AG Zurich and Regional CEO for Developed Markets in April 2016. He is responsible for Switzerland, Member of General Management and UK, Hong Kong and Canada. Head of Developed Markets Before joining Habib Bank AG Zurich, Rajat Garg worked for Citibank for 26 years in a number of different areas of commercial banking and wealth management across multiple geographies in Asia, Middle East and Europe. He was Head of Retail Banking & Wealth Management for the Europe, Middle East & Africa region from 2008 to 2015, with oversight for 16 countries (based in London). Prior to that, he served as Country Business Manager for Citibank Turkey (based in Istanbul) and as Cards Business Head for Saudi American Bank (based in Riyadh). Between 2001 and 2003 he served as Regional CFO for Citibank Asia Cards, covering 12 countries (based out of Singapore). Prior to that, from 1997 to 2001, he helped start up and establish the Citibank Non Resident Indian Wealth Management Business, which operated from 15 cities globally (based out of Singapore). From 1989 to 1997 he served in various positions with Citibank India, notably in Risk Management, Finance and Business Planning. He started his professional career in 1989 as a Management Associate with Citibank. Rajat Garg holds an MBA from the Indian Insti- tute of Management Calcutta and a Bachelor of Technology in Civil Engineering from the Indian Institute of Technology Kanpur.

Anjum Iqbal Professional history and education British, born 1952 Anjum Iqbal became a member of General Management of Habib Bank AG Zurich and Regional CEO for Emerging Markets in February 2016. He oversees the banks’ operations Member of General Management and in Africa, consisting of the branch in Kenya and subsidiary in the South Africa. He is also Head of Emerging Markets a member of the Group Credit Management Committee (GCMC). He joined Habib Bank AG Zurich in late 2008 as the President and Chief Executive Officer of Habib Metropolitan Bank Ltd. (Pakistan) before being transferred to London in January 2012 where he was appointed Chief Executive Officer to lead operations in the UK (until 2015).

Prior to joining Habib Bank AG Zurich, Anjum Iqbal worked with Citigroup for more than 30 years, holding various senior management positions across different geographical regions including Pakistan, Greece, Lebanon, Venezuela, Turkey, Belgium, South Africa, UAE and the UK. In his last role with Citigroup he was Managing Director responsible for the EMEA Commercial Banking Group in London. Anjum Iqbal holds a Bachelor’s degree in commerce from the University of Karachi and holds a Master’s degree in business administration (MBA) in Marketing and Finance from the Institute of Business Administration (IBA), University of Karachi, Pakistan.

Walter Mathis Professional history and education Swiss, born 1961 Walter Mathis became a member of General Management and Head of Shared Services in August 2013 and was a member of the Board of Directors of Habib Bank AG Zurich from Member of General Management and 2012 until 2013. Head of Shared Services Walter Mathis has worked in the financial industry for over 35 years and has held management positions in international financial institutions and consultancy firms. Before joining Habib Bank AG Zurich, he worked for 15 years for Synergis Consulting Ltd, a consultancy boutique for the financial industry, which he co-founded. Prior to that, he was a Member of Management and Head of Controlling at Banca del Gottardo in Lugano, where he was employed for six years. From 1988 to 1992 he worked for Peat, Internati- onal Consultants Ltd (KPMG), where he built up and headed – as Partner – the financial service consultancy in Geneva. Walter Mathis started his professional career with Cre- dit Suisse, working for five years in various positions and locations. He was a member of the Financial Market Regulation and Accounting Commission (from 1996 - 1998 and 2013 - 2015) for the Association of Foreign Banks in Switzerland. Walter Mathis holds a Bachelor of Arts (BA) in economics. In 1987 he graduated from the University of Applied Sciences of Zurich, and is a graduate of the Executive Program from the Swiss Finance Institute of Zurich.

10 GROUP Habib Bank AG Zurich

Management of the branch network

Name Born Citizenship Function Country

Christian Lerch 1959 Swiss Country Manager Switzerland Jamal Alvi 1962 British Country Manager United Arab Emirates Asim Basharullah 1971 Pakistani Country Manager Kenya

Management of the subsidiaries

Name Born Citizenship Function Country

Muslim Hassan 1955 Canadian Chief Executive Officer Canada Zafar Khan 1952 South African Chief Executive Officer South Africa Mohsin A. Nathani 1965 Pakistani Chief Executive Officer Pakistan Sachil Dagur 1969 Indian Chief Executive Officer Hong Kong Satyajeet Roy 1967 British Chief Executive Officer United Kingdom

Management of the representative offices

Name Born Citizenship Function Country

Nazrul Huda 1953 Bangladeshi Representative Office Manager Bangladesh

Masud Abid 1961 Chinese Representative Office Manager Hong Kong

Syed Hassan Nasim Ahmed 1968 Pakistani Representative Office Manager Pakistan

Irene Wu Ying 1973 Chinese Representative Office Manager China

GROUP 11 Habib Bank AG Zurich

Group Business Functions

Name Born Citizenship Function

Sirajuddin Aziz 1956 Pakistani CEO Group Financial Institutions Arif Lakhani 1945 Pakistani CEO Group Wealth Management Adnan Fasih 1967 Pakistani Head of Group Islamic Banking

Group Service and Control Functions

Name Born Citizenship Function

Haja Alavudeen 1966 Indian Head of Group Information & Technology Risk Rizwan Arain 1969 Pakistani Head of Group Information & Technology Risk Umair Chaudhary 1968 British Group Chief Operating Officer Felix Gasser 1959 Swiss Head of Group Risk Control Dr. Sitwat Husain 1964 Pakistani Head of Group Human Resources Dr. Pascal Mang 1964 Swiss Head of Group Legal & Compliance Alfred Merz 1962 Swiss Head of Group Financial Control Atif Mufti 1973 Pakistani Head of Group Operations & Systems Uzma Murshed 1970 Pakistani Head of Group Operational Risk Syam Pillai 1962 Indian Head of Group Information Technology Ralph Schneider 1964 Swiss Head of Group Credit

Group Internal Audit

Name Born Citizenship Function

Haroon Ahmad 1975 Pakistani Head of Group Internal Audit

12 GROUP Habib Bank AG Zurich

Management report

Economic environment value. Inflation stabilised at high levels. These deve- lopments allowed the State Bank to end its hiking Global growth slowed further in 2019 as the mone- cycle in July after an astounding 325 basis points tary policy normalisation by the US Federal Reserve rate increases. in 2018 and protectionist US trade policy started to impact real activity. When financial markets started Economic activity in the UAE stayed lacklustre to price in a US recession and a more pronounc- during 2019 due to multiple factors. Most notably, ed slowdown elsewhere, the US Federal Reserve the real estate market remained sluggish, as sales promptly reversed its policy stance. Over the course and prices declined further and regional tensions of 2019, the US Federal Reserve lowered its poli- weighed on sentiment and prevented a resolution of cy rate three times and other major central banks the ongoing conflict in the region. At the same time, took similar accommodative steps. Fiscal policy lower interest rates due to the USD currency peg and was also eased in many countries. While growth higher, volatile prices for crude oil provided some eventually stabilised at lower levels, the US-China support to the economy. In addition, the three-year trade conflict continued to weigh on sentiment and fiscal stimulus plan adopted in 2018 remained in activity. Towards year-end, both the US and China effect but growth nevertheless fell to its lowest level signalled their willingness to lower tensions and in the past eight years. prepared the ground for a temporary agreement. While USD interest rates fell across the curve, USD Even under the leadership of reform-minded strength persisted for most of the year. Many emer- President Ramaphosa, South Africa was unable to ging market economies struggled due to the cooling turnaround its protracted period of weak economic of global trade and muted business confidence. In growth. Growth did however rebound from the seve- addition, policy errors and stretched public as well re contraction at the beginning of the year, thanks to as external accounts aggravated the situation, most a recovery in the mining sector and some positive notably in Argentina and Turkey. contributions from finance, real estate and business services. The stabilisation of inflation allowed the In Pakistan, the economic situation stabilised over South African Reserve Bank to cut its policy rate the course of the year but not before the country had in July. In the May parliamentary elections, the experienced another dose of economic pain. Con- ANC government retained a reduced but comfor- sequently, growth fell to the lowest level since the table majority, which allowed it to pursue growth- financial crisis of 2008. The process of stabilisation supporting policies in order to tackle many of South was greatly aided by the re-engagement with the Africa’s long-standing structural issues, including IMF, which approved a USD 6 billion multi-year the poor financial condition of the state-owned utility program. The agreement lifted sentiment and remo- Eskom. Towards end of March 2020, Moody’s has ved near-term funding concerns. Although the IMF downgraded South Africa’s rating from Baa3 to Ba1 programme set tough targets, which required ongoing whilst maintaining a negative outlook. and painful structural adjustments, the external situation improved with a very noticeable reduction The UK economy was dominated for another year in the current account shortfall. Weak exports and by uncertainty over Brexit. At the December general more moderate growth of external remittances sig- election, the Conservative Party, under Boris Johnson nalled that many obstacles for a sustained recovery (a staunch Brexiteer who had succeeded Theresa had yet to be removed. The introduction of a more May in July 2019) achieved a decisive victory. This market-based exchange rate system did not result result gave visibility for businesses and investors. in the expected additional pressure on the currency, The currency somewhat recovered but has remained which over the past two years had lost 40% of its significantly undervalued. Overall, economic per-

GROUP 13 Habib Bank AG Zurich

formance was better than expected, as it continued risks for Hong Kong’s standing within the Greater to exhibit remarkable resilience despite depressed Chinese economy. corporate spending and a soft property market. Low unemployment and robust consumer demand, paired In 2019, the Canadian economy continued to expand with an unchanged highly accommodative monetary at a decent pace although the softer global environ- policy by the Bank of England, delivered a growth ment did impact the external sector. The overall good rate similar to 2018. economic performance allowed the Bank of Canada to keep its policy unchanged compared with the Following a boom-like expansion in 2018, Swiss global trend for lower interest rates. The federal elec- economic growth settled in at a much more mode- tions handed victory to the incumbent Liberal Party, rate pace in 2019, mainly due to the country’s expo- which had to, however, form a minority government. sure to the weakening Eurozone and the slowing global manufacturing cycle. Swiss Franc apprecia- Banking sector ted moderately during the period. Domestic demand was subdued due to a moderation in the construction Once again, slower global growth represented a sector. The October general elections saw a strong major challenge for the banking industry worldwide. showing of environmentally-minded parties but did Growth of top-line revenues and volumes slowed not change the status-quo. and profitability stagnated. Lower USD interest rates contributed to lower net interest margins in USD- Kenya maintained a steady and robust rate of growth based business activities and in countries whose thanks to its fairly diversified economy and strong currencies are pegged to the USD. Although credit business confidence. The removal of the much- growth remained muted, overall levels of indebted- criticised interest rate cap helped to restore some ness remained high. Pakistan was an outlier among stability in the credit market. Lower inflation also the Group’s core markets with an increase of 20% allowed the Central Bank of Kenya to cut its policy compared with 2018. Globally, credit impairments rate, thereby providing additional stimulus to the re-mained low in general. economy. The country was unable to conclude a new stand-by agreement with the IMF, largely because The easing of global financial conditions over the the IMF views the government’s ambitious infra- course of the year created attractive refinancing con- structure investment programme with scepticism. ditions for entities with access to capital markets or Nevertheless, external accounts remained stable bank funding. Generally lower credit costs, as meas- and manageable due to strong capital inflows and a ured by credit spreads, also contained contagion risks stable currency. from stressed issuers in the rest of the market.

The political protests which erupted in March sever- The banking sector faced continued pressures ema- ely affected Hong Kong’s economic performance nating from trends towards tightening regulatory in 2019. In fact, the territory’s economy contracted frameworks, be it in terms of capital adequacy or for the first time since 2009. The domestic tensions business conduct, as well as digital disruptions of (the government had announced new measures to established business models (Fintech, Blockchain, address long-standing social problems, including digital platform companies). Responding to these housing and social support, that had fuelled protests) requirements and challenges required the industry to were compounded by external headwinds such as maintain a high level of spending, often contributing lower mainland growth and US-China trade tensi- to rising cost-income ratios. ons. The political unrest has resulted in long-term

14 GROUP Habib Bank AG Zurich

Operational performance and outlook Operating income, in CHF million

Income statement 407.8 500

324.1 2019 was a successful year for the Group.400 Overall 279.9 the Group achieved a profit of CHF 91.5 million, 262.3 229.2 which was CHF 11.8 million or 14.9% above300 the 210.5 previous year (2018: CHF 79.7 million). This mainly 200 due to lower "Value adjustments for default risks 79.0 75.0 76.0 and losses" from interest operations of CHF100 0.1 mil- 44.8 lion (2018: CHF -76.1 million) as well as a positive -20.3 3.1 -52.4 -3.9 7.2 "Result from trading activities and the fair0 value option" of CHF 44.8 million (2018: CHF -52.4 mil- -100 31.12.17 31.12.18 31.12.19 lion). Net result from interest operations Interest income increased significantly by 27.7% or Result from commission business and services CHF 149.0 million to CHF 687.7 million. However, Result from trading activities "Interest expense" rose as well by 61.8% or CHF Other result Total 155.8 million. Therefore, the "Gross results from interest operations" decreased by 2.4%. In 2018, a Total one-time impact of CHF 71.3 million was booked Other result due to the introduction of the expected credit loss "Operating expenses" increased slightlyResult from by trading 1.2% activites methodology (ECL, in accordance with IFRS 9). to CHF 227.0 million (2018: CHF 224.4 million). Result from commission business and services Without this one-time impact, the net result for inter- Expenses for information and communication tech- est operations 2018 would be CHF 281.8 million, nology increased by CHF 3.4 million comparedNet result from interestwith operations which would be at the same level as of 2019. the previous year. This mainly due to the implemen- tation of the new banking software for the Swiss "Results from commissions business and services" operations in the fourth quarter 2019. of CHF 76.0 million increased by 1.3% or CHF 1.0 million compared with the previous year (2018: Due to higher operating results of CHF 166.3 mil- CHF 75.0 million). This mainly due to a higher lion, tax expenses increased to CHF 57.6 million "Commission income from other services". compared with CHF 22.2 million in the previous year. The "Result from trading activities and the fair value option" was CHF 44.8 million and was mainly In 2019 CHF 17.9 million had been charged to driven by an increased foreign exchange rate volatil- "Changes in reserves for general banking risks", ity, which led to higher transaction volumes. In the while in 2018 CHF 111.4 million had been released previous year, a revaluation loss of CHF 80.4 mil- due to the introduction of the expected credit loss lion was booked and therefore a negative result of methodology. CHF 52.4 million occurred for 2018. Excluding this revaluation loss, the increase in 2019 would be CHF The "Cost / income ratio" of 55.7% for 2019 was the 16.7 million or 59.7%. lowest in the last three years. This is the result of increasing gross income and relatively stable operating "Operating income" for 2019 was CHF 407.8 million expenses. which is an increase of CHF 178.6 million or 77.9%.

GROUP 15 Habib Bank AG Zurich

Balance sheet In 2019 "Liabilities from securities financing transactions" increased by CHF 484.5 million due to The balance sheet total increased by CHF 857.6 mil- increased volumes of security financing transactions lion or 8.3%, driven by organic growth of business of our Pakistan subsidiary. and increased volumes of security financing transactions of our Pakistan subsidiary. "Amounts due in respect of customer deposits" increased by CHF 162.3 million or 1.9% year-on- "Liquid assets" increased by CHF 307.7 million or year. The majority of the operating countries were 27.2%, amounting to CHF 1’439.9 million as of 31 able to increase their volumes of customer deposits. December 2019. This increase was related to higher A significant portion of the deposits is invested in central bank balances in the operating countries. debt instruments, mainly with sovereign counterparties in countries where the Group is active. "Total loans (after netting with value adjustments)" with customers decreased by CHF 0.8 million com- During 2019 additional "Reserves for general bank- pared with 2018 (see note 2 for further details). While ing risks" of CHF 9.1 million were booked. "Amounts due from customers" increased by CHF 112.3 million, "Mortgage loans" decreased by CHF Total equity stood at CHF 1’196.1 million at the end 113.1 million. of 2019 compared with CHF 1’147.7 million at the end of the previous year. This is an increase of 4.2%. Advances customers, in CHF million The return on equity for 2019 was 7.8% compared with 6.5% in 2018 and 4.7% in 2017. 3'557 3'546 3'545 4000 3500 Capital and liquidity 3000 2500 The Group has a strong capital base and an adequate 1'705 2000 1'579 1'601 1'587 1'561 1'462 liquidity ratio. 1500 1000 The "Capital ratio" of the Group is 19.7%. The Group 500 377 398 378 is considered as a Category 4 Bank by the Swiss 0 Financial Market Supervisory Authority (FINMA) 31.12.17 31.12.18 31.12.19 and must maintain a regulatory target capital ratio of a minimum of 11.2%. The Group’s "Capital Secured by mortgage ratio" is 8.6 basis points greater than the minimum Other collateral capital requirement and clearly has a strong capital Unsecured base. Accordingly, we were ranked in the top range Total of Swiss banks, well above the average of other European financial institutions. "Other financial instruments at fair value" and "Financial investments" increased by CHF 478.7 The "Liquidity coverage ratio" increased to 122.0% million or 13.5% to CHF 4’015.9 million. The at Group level, which was clearly above the mini- increase was a result of increased security financing mum requirement of 100% for the Group (for further transactions in Pakistan and overall net purchases of details, please see the capital adequacy and liquidity financial investments in our various operations. disclosure requirements as of 31 December 2019 at our homepage (www.habibbank.com/Group Finan- cials)).

16 GROUP Habib Bank AG Zurich

Capital ratio (%) numerous software enhancements were rolled-out, contributing towards process improvements, regula- 19.7 tory requirements and strategic initiatives across the 20,0 19.4 19.5 19,5 Group. The Group's data centre obtained PCI DSS 19,0 (Payment Card Industry Data Security Standard) 18,5 recertification for the third consecutive year. A red 18,0 teaming exercise was conducted to test the organi- 17,5 11.2% sation’s infrastructure defences. The results of these 17,0 16,5 tests were satisfactory. The SWIFT Customer Secu- 16,0 rity Program assessment was conducted by KPMG 15,5 and all requirements were complied with. 15,0 31.12.17 31.12.18 31.12.19 Group Internal Audit was evaluated by PwC and achieved "General Conformance" to the IIA Stand- ards, which is the highest achievable rating under Risk assessment IIA Standards.

The Board of Directors conducted a risk assessment Diversity remained a key focus as we enhanced both of major risk exposures of the Bank and the Group our gender and nationality representation across all in 2019. our geographies. Succession planning has also received much attention during the past year and remains Operations a frequently discussed topic at the management level. We also increased our online learning capacity Global uncertainty, protectionist US trade policy, by increasing content and bringing in new training considerable economic pain in Pakistan, economic modules. Further, developed and renewed the Group activity slowdown in United Arab Emirates, United Human Resource governance documents (Group HR Kingdom economy dominated by Brexit uncertainty, Directives). long-standing structural issues in South Africa and political protests in Hong Kong, shifted the economic Outlook environment in countries where the Group is active. Despite these challenges, the Group made progress The Coronavirus (COVID-19) outbreak will have in implementing its strategic plan. Next to the roll- a serious impact on the global economy. Global out of its mobile banking application, the Group also financial markets have seen a sharp downturn in enhanced its digital service offering with contact- the first quarter of 2020, experiencing a free-fall in less cards, and eWallets such as Samsung Pay, and equities and a flight towards safe haven assets such Android Pay. The United Kingdom has introduced as Gold. Global manufacturing, trade and air-travel electronic switch services, whereby customers can are likely to be the worst hit because of the spread seamlessly shift accounts between banks, and Can- of Coronavirus, while the lockdown observed in the ada started its Student Direct Stream programme in industrial heartland of China has badly impacted the partnership with the Government of Canada. In late global supply chain, which has and will continue 2019, the wealth management business Switzerland to create supply shocks across various markets and successfully migrated to a state of the art IT platform industries. The Group initiated and implemented which will improve client services like online bank- extensive crisis management, along with business ing and will ensure adaptivity to frequent changes in continuity plans, with a set of various measures that regulation. In addition, during the course of the year, leverages a number of components, some of which

GROUP 17 Habib Bank AG Zurich

include communication plans, employee wellness In 2020 we will roll-out of our Talent Management initiatives, telecommuting and business processes, Programme which will not only enhance our emplo- localised to each operating environment. Ongoing yee engagement but will also help build a pipeline of geopolitical tensions and global uncertainty will con- robust future talents. tinue to suppress economic growth and continue to cause a deterioration in economic sentiment across all regions. However, the Group - with its strong brand, customer loyalty and robust compliance and control functions - remains well-positioned from a capital and liquidity prespective to assist our clients and is well placed to further implement its strategy. We continue to focus on specialised staffing to leverage our strategic initiatives around Financial Institutions, Wealth Management and Sharia-compliant products.

In the beginning of this year, we have opened our new representative office in Shanghai, China. This initiative is in accordance with the Group’s vision to expand its global representation particularly in the second largest economy of the World to capture increased trade flows.

The UK’s Financial Conduct Authority has stated that it would not be mandatorily seeking for London Interbank Offered Rate (LIBOR) quotes from banks beyond the end of 2021. This affects all contracts that are linked to LIBOR. Transition from LIBOR to alternative risk-free rates (RFR) or prime rates is a major challenge for the financial industry.

The journey towards digital transformation will continue in 2020 by extending the eWallets offering, implementing Apple Pay and providing biometric login access to accounts, further enhancing the user experience across all of our digital channels. In addition, cyber security will be strengthened by social media monitoring initiatives, which will give us visibility in cyberspace in order to eliminate threats and to strengthen external-facing cyber security. To further strengthen the Group's information security practices, the Management continues to remain focused on the same.

18 GROUP Habib Bank AG Zurich

Consolidated financial statements of the Group

Group financial statements Balance sheet 20 Off-balance sheet transactions 21 Income statement 22 Cash flow statement 24 Statement of changes in equity 26 Notes to the consolidated financial statements 28 Report of the Statutory Auditor 60

GROUP 19 Habib Bank AG Zurich

Balance sheet (consolidated)

in CHF 1'000 Note 31.12.19 31.12.18 +/- % Assets Liquid assets 1'439'875 1'132'162 27.2% Amounts due from banks 1'816'013 1'710'960 6.1% Amounts due from securities financing transactions 1 29'482 -100.0% Amounts due from customers 2 3'184'384 3'072'108 3.7% Mortgage loans 2 361'048 474'147 -23.9% Positive replacement values of derivative financial instruments 4 29'728 30'825 -3.6% Other financial instruments at fair value 3 2'545'727 2'148'703 18.5% Financial investments 5 1'470'218 1'388'540 5.9% Accrued income and prepaid expenses 147'604 150'537 -1.9% Non-consolidated participations 7 77 77 0.0% Tangible fixed assets 8 83'705 86'467 -3.2% Intangible assets 9 113 293 -61.6% Other assets 10 84'609 81'155 4.3% Total assets 11'163'100 10'305'456 8.3% Total subordinated claims 5'015 - of which subject to conversion and / or debt waiver

Liabilities Amounts due to banks 560'168 434'710 28.9% Liabilities from securities financing transactions 1 578'646 94'181 514.4% Amounts due in respect of customer deposits 8'583'781 8'421'532 1.9% Negative replacement values of derivative financial instruments 4 51'074 26'510 92.7% Accrued expenses and deferred income 153'894 146'136 5.3% Other liabilities 10 33'658 28'252 19.1% Provisions 13 5'783 6'454 -10.4% Reserves for general banking risks 13 456'556 447'463 2.0% Bank's capital 150'000 150'000 0.0% Retained earnings reserves 317'555 289'439 9.7% Minority interest in equity 180'437 181'079 -0.4% Group profit 91'547 79'700 14.9% - of which minority interests in group profit 25'307 20'218 25.2% Total liabilities 11'163'100 10'305'456 8.3% Total subordinated liabilities - of which subject to conversion and / or debt waiver

20 GROUP Habib Bank AG Zurich

Off-balance sheet transactions (consolidated)

in CHF 1'000 Note 31.12.19 31.12.18 +/- % Off-balance sheet transactions Contingent liabilities 2, 20 1'531'301 1'305'284 17.3% Irrevocable commitments 2 1'060 1'096 -3.3% Credit commitments 2, 21 173'299 125'482 38.1%

GROUP 21 Habib Bank AG Zurich

Income statement (consolidated)

in CHF 1'000 Note 2019 2018 +/- % Result from interest operations Interest and discount income 369'859 273'414 35.3% Interest and dividend income from trading portfolios 5'034 Interest and dividend income from financial investments 312'764 265'232 17.9% Interest expense -407'863 -252'088 61.8% Gross result from interest operations 279'794 286'558 -2.4%

Changes in value adjustments for default risks and losses from interest operations 102 -76'077 -100.1% Subtotal net result from interest operations 279'896 210'481 33.0%

Result from commission business and services Commission income from securities trading and investment activities 4'901 5'035 -2.7% Commission income from lending activities 25'535 25'690 -0.6% Commission income from other services 52'634 51'113 3.0% Commission expense -7'088 -6'823 3.9% Subtotal result from commission business and services 75'982 75'015 1.3%

Result from trading activities and the fair value option 23 44'770 -52'365 -185.5%

Other result from ordinary activities Result from the disposal of financial investments 615 -881 -169.8% Result from real estate 524 500 4.8% Other ordinary income 6'024 817 637.4% Other ordinary expenses -4'350 -100.0% Subtotal other result from ordinary activities 7'163 -3'914 -283.0%

Operating income 407'811 229'217 77.9%

22 GROUP Habib Bank AG Zurich

in CHF 1'000 Note 2019 2018 +/- % Operating expenses Personnel expenses 24 -146'076 -146'091 0.0% General and administrative expenses 25 -80'903 -78'293 3.3% Subtotal operating expenses -226'980 -224'384 1.2%

Value adjustments on participations, depreciation and amortisation on tangible fixed assets and intangible assets -14'005 -14'066 -0.4% Changes to provisions and other value adjustments and losses -575 -2'417 -76.2%

Operating result 166'251 -11'650

Extraordinary income 26 817 2'238 -63.5% Extraordinary expenses 26 -3 -33 -90.4% Changes in reserves for general banking risks -17'942 111'387 -116.1% Taxes 28 -57'576 -22'242 158.9%

Group profit 91'547 79'700 14.9% - of which minority interests in group profit 25'307 20'218 25.2%

GROUP 23 Habib Bank AG Zurich

Cash flow statement (consolidated)

2019 2018 in CHF 1'000 Cash inflow Cash outflow Cash inflow Cash outflow Cash flow from operating activities Group profit 91'547 79'700 Change in reserves for general banking risks 17'942 111'387 Value adjustments on participation, depreciation and amortisation on tangible fixed assets and intangible assets 14'005 14'066 Provisions and other value adjustments 1'063 1'733 3'955 3'441 Changes in value adjustments for default risks and losses 20'105 32'086 105'809 72'689 Currency translation reserves 37'908 95'100 Accrued income and prepaid expenses 2'933 550 Accrued expenses and deferred income 7'758 10'066 Previous year's dividend 23'167 22'068 Total 155'353 94'894 203'530 315'301

Cash flow from shareholders' equity transactions Bank's capital Recognised in reserves Total

Cash flow from transactions in respect of non-consolidated participations, tangible fixed assets and intangible assets Non-consolidated participations 11 Real estate 3'007 11'022 3'442 12'628 Other tangible fixed assets 293 3'521 2'578 7'047 Intangible assets 24 76 Total 3'324 14'544 6'107 19'675

24 GROUP Habib Bank AG Zurich

2019 2018 in CHF 1'000 Cash inflow Cash outflow Cash inflow Cash outflow Cash flow from banking operations Medium- to long-term business (> 1 year) Amounts due to banks Amounts due in respect of customer deposits 26'795 4'669 Other liabilities 5'406 3'566 Amounts due from banks 12'277 35'107 Amounts due from customers 47'339 61'738 Mortgage loans 35'050 140'703 Other financial instruments at fair value Financial investments 56'450 249'002 Other assets 3'454 525 Short-term business Amounts due to banks 125'458 142'470 Liabilities from securities financing transactions 484'465 158'036 Amounts due in respect of customer deposits 189'044 975'832 Negative replacement values for derivative financial instruments 24'564 7'988 Amounts due from banks 117'874 265'985 3'125 Amounts due from securities financing transactions 29'482 26'408 Amounts due from customers 153'407 13'701 137'727 Mortgages loans 86'612 94'970 Trading portfolio assets Positive replacement values for derivative financial instruments 1'097 1'457 Other financial instruments at fair value 397'024 1'018'016 Financial investments 28'227 341'580 2'251 Currency differences 907 180

Liquidity 307'713 101'615 Liquid assets 307'713 101'615 Total 1'200'380 1'200'380 2'165'632 2'165'632

GROUP 25 Habib Bank AG Zurich

Statement of changes in equity (consolidated)

Reserves Retained for general Minority Bank's earnings banking interests Group in CHF 1'000 capital reserves risks in equity profit Total At 1.1.18 150'000 318'911 540'877 226'277 60'471 1'296'536 Transfer of profits to retained earnings 31'310 29'161 -60'471 Currency translation differences -52'782 -42'318 -95'100 Dividends and other distributions -8'000 -14'068 -22'068 Other allocations to / (transfers from) reserves for general banking risks -93'414 -17'973 -111'387 Other allocations to / (transfers from) other reserves Group profit 79'700 79'700 At 31.12.18 150'000 289'439 447'463 181'079 79'700 1'147'681

Retained earnings reserve includes currency translation reserves of CHF -87.0 million, which increased during 2018 by CHF 52.8 million.

At 1.1.19 150'000 289'439 447'463 181'079 79'700 1'147'681 Transfer of profits to retained earnings 59'482 20'218 -79'700 Currency translation differences -16'366 -21'542 -37'908 Dividends and other distributions -15'000 -8'167 -23'167 Other allocations to / (transfers from) reserves for general banking risks 9'093 8'849 17'942 Other allocations to / (transfers from) other reserves Group profit 91'547 91'547 At 31.12.19 150'000 317'555 456'556 180'437 91'547 1'196'095

Retained earnings reserve includes currency translation reserves of CHF -103.4 million, which increased during 2019 by CHF 16.4 million.

26 GROUP Habib Bank AG Zurich

Sajikot Waterfall, Pakistan

GROUP 27 Habib Bank AG Zurich

Notes to the consolidated financial statements

Accounting and valuation principles to third parties in foreign currencies are translated at the year-end rate. Gains and losses arising from General currency translations into the local currencies are charged to the income statement as income from The Habib Bank AG Zurich Group’s annual financial "Result from trading activities and the fair value statements have been drawn up in accordance with the option". accounting rules incorporated into the Swiss Banking Act and its accompanying ordinance, together with For consolidation purposes, the balance sheets of FINMA Circular 2015/1 "Accounting - Banks". the financial statements of branches and subsidiaries based outside Switzerland are translated into CHF These accounts, which are based on the following con- at exchange rates prevailing on the Group report- solidation and accounting policies, give a true and ing date. The corresponding income statements fair view of the Bank’s and the Group’s assets, of its are translated at the average rates of the respective financial position and of the results of its operations. year. Foreign exchange differences arising from the translation of the financial statements of subsidiaries Consolidation principles are recorded within equity, whereas those from the translation of financial statements of branches are Scope of consolidation recorded in the income statement as "Result from The Group accounts include the annual financial trading activities and the fair value option". statements of Habib Bank AG Zurich, Zurich and its subsidiaries in which the Bank has a participation of The following exchange rates of the major currencies more than 50 percent of the voting capital or which were used for the balance sheet: it controls in another way. Refer to note 6 for a list of consolidated subsidiaries. 31.12.19 31.12.18 1 USD 0.968 0.985 Method of consolidation 1 GBP 1.270 1.249 The Group’s capital consolidation follows the pur- 100 AED 26.349 26.814 chase method. 100 PKR 0.625 0.705 100 ZAR 6.875 6.849 The interest in equity and profit or loss attributable to minority shareholders are disclosed separately. Intra- The following exchange rates of the major currencies group assets and liabilities as well as expenses and were used for the income statement: income from intra-group transactions are eliminated. 31.12.19 31.12.18 Consolidation period 1 USD 0.992 0.976 The consolidation period for all Group companies is 1 GBP 1.267 1.300 the calendar year. The closing date for the consoli- 100 AED 27.008 26.583 dated financial statements is 31 December. 100 PKR 0.663 0.807 100 ZAR 6.859 7.462 Foreign currency translation Valuation and accounting principles In the financial statements of individual Group companies and branches, income and expenditure in foreign The Group and the Bank apply the same valuation currencies are translated at the exchange rate prevail- and accounting principles. ing on the transaction date. Amounts due from and due

28 GROUP Habib Bank AG Zurich

The financial statements of all group companies used Amounts due from customers, mortgage loans and for consolidation comply with the valuation and amounts due in respect of customer deposits accounting principles outlined below. These items, including interest due but not paid, Recording of transactions are recognized at nominal value. All client loans are assessed individually for default risks and, Transactions are recorded and measured on the day where necessary, value adjustments made in ac- they occur (transaction date). Prior to the value date, cordance with Group policy. These value adjust- forward foreign exchange and precious metal trans- ments take into account the value of any collateral actions are carried as off-balance sheet business. (at liquidation values) and the financial standing of Receivables and payables are disclosed according the borrower. They are set off against the correspond- to the domicile or residency of clients. ing assets.

Liquid assets Several Islamic banking branches in Pakistan and South Africa maintain "Assets held under Ijarah" Liquid assets consist of cash in hand, postal cheque agreements. Acquired assets under this agreement balances, giro and sight deposits at the Swiss National are stated at cost less accumulated depreciation and Bank and foreign central banks. These items, includ- impairment, if any. ing interest due but not paid, are recognized at nominal value. Value adjustments for default and latent credit risks Amounts due from and due to banks The Group calculates expected credit losses (ECL), Amounts due from and due to banks, including inter- with the exception of Pakistan and Switzerland, and est due but not paid, are recognized at nominal value. provides for these, according to the classifications, Appropriate allowances are created for default risks "performing credit exposure" (normal) as well as on existing positions and directly deducted from as- "heightened credit risk exposure" (watch). Princi- sets. ples are applied in accordance with local regulations in each of the operating countries. In Pakistan and Amounts due from and liabilities from securities Switzerland, latent credit risk provisions were made financing transactions for industry and country risks only.

The Group buys and sells securities under agree- The methodology of the ECL calculation takes into ments to resell or repurchase substantially identical account the probability of default, the loss given securities. Such agreements do not normally con- default, the exposure at default as well as an inbuilt stitute economic sales and are therefore treated as forward-looking element considering the macroeco- financing transactions. Securities sold subject to such nomic outlook for the respective operating country. agreements continue to be recognised in the balance sheet. The proceeds from the sale of these securities Non-performing credit exposure is taken into consid- are treated as liabilities. Securities purchased under eration when an obligor is unlikely to pay its credit agreements to re-sell are recognised as loans collat- obligations to the Group in full and without any poss- eralised by securities, or as cash deposits against ibility of recourse by the Group (such as realising col- which the Group’s securities are pledged. lateral) or if the obligor is 90 days or more past due on any material credit obligation. The assessment of whether a credit exposure is non-performing is made

GROUP 29 Habib Bank AG Zurich

on a counterparty level (entailing all exposures of ing from contracts traded over-the-counter (OTC) the respective entity), with the exception of Pakistan, as well as exchange-traded contracts are accounted where local regulations allow for provisions on a fa- for. Replacement values from trading activities are cility level. accounted for under “Positive replacement values of derivative financial instruments” on the asset side For credit receivables, whose interest and commis- or item “Negative replacement values of derivative sions are more than 90 days overdue are considered financial instruments” on the liability side. Valua- to be at risk. Interest at risk and interest, which is tion gains are recognized through income in the item impaired are not recognised as income but are de- “Results from trading activities and the fair value ducted, together with the value adjustment against option”. the capital amount, from the respective asset. If the collection of interest in respect of "Amounts due Other financial instruments at fair value from customers" and "Mortgage loans" is doubtful, interest is not calculated. "Other financial instruments at fair value" which are traded on an active market, which meet the conditions Value adjustments for latent credit risks in relation for an assessment at fair value according to FINMA to country risks are assessed in accordance with the Circular 2015/1 "Accounting – Banks" and which are guidelines on the management of country risk from not intended to be held until maturity are valued the Swiss Bankers Association. Furthermore, value according to this principle. adjustments for latent credit risks are maintained in Pakistan based on the differentiated risk profiles rec- Financial investments ognised for individual industry sectors of the loan portfolios. Value adjustments for latent credit risks in "Financial investments" consist mainly of debt in- relation to country risks are deducted from "Amounts struments. The majority of these are acquired with due from customers". the intention of holding them until maturity and are hence carried at cost adjusted for the amortisation of Trading portfolio assets and liabilities premiums and discounts using the accrual method.

These items consist mainly of debt instruments. They The remaining investments in this position are val- are valued at fair value as of the balance sheet date. ued at the lower of cost or market value principle. Fair value is defined as the amount for which an as- This position also includes some equity interests as set could be exchanged or a liability settled between well as real estate which has been assumed from the knowledgeable, willing and independent parties. This lending business for resale; these are valued at the corresponds to the price set on a price-efficient and lower of cost or market value. liquid market or determined based on a valuation model. Where, as an exception, fair value is indeter- Derivative financial instruments minate, it is measured and recognized at the lower of cost or market value. Derivative financial instruments consist entirely of trading instruments which are reported at fair value. Positive and negative replacement values of deri- The realised and non-realised gains and losses from vative financial instruments these transactions are reported under "Result from trading activities and the fair value option". Derivative financial instruments are valued at fair value. In general, replacement values of derivative The Group had no significant open derivative trans- financial instruments from client transactions result- actions on its own account as of the balance sheet

30 GROUP Habib Bank AG Zurich

date. Positive and negative replacement values of Reserves for general banking risks open derivative financial instruments are shown in the balance sheet as a separate line item. The respec- These taxed reserves are held in line with the Group’s tive contract volumes are shown in note 4. prudent policies as precautionary reserves to hedge against latent risks in the Group’s operating activities. Non-consolidated participations The reserves for general banking risks are subject to tax. They form part of the "Common equity Tier 1 Long-term holdings in associated companies, none of capital" of the Group. which exceed 10%, are valued at cost less any eco- nomically necessary depreciation. Off-balance sheet transactions

Tangible fixed assets "Contingent liabilities" relate mainly to irrevocable commitments originating from letters of credit and "Tangible fixed assets" used for more than one guarantees. These are generally fully secured. Neces- accounting period and which exceed the thresholds sary provisions are recorded on balance sheet under defined by the Group are capitalised. In this case they "Provisions". Contingent liabilities, together with are depreciated on a straight-line basis over the pe- irrevocable commitments and credit commitments, riod of their estimated useful lifetime. Estimated life are recorded at nominal value. times have been set as follows: Fiduciary transactions are converted into CHF at the Bank buildings and other real estate 25-50 years rates prevailing on the balance sheet date and are Proprietary or separately shown at nominal value. acquired software 3-5 years Other tangible fixed assets 3-10 years Taxes and deferred taxes

No depreciation is charged on land except where Income taxes are based on the tax laws of each tax value adjustments have been made to allow for a re- authority and are expensed in the period in which the duction in market value. The "Tangible fixed assets" related profits are made. Deferred taxes arising from are reassessed whenever circumstances suggest that temporary differences between the stated values of their value may have fallen below their book value. assets and liabilities in the consolidated financial statements and their corresponding tax values are Intangible assets recognised as deferred tax assets or deferred tax liabilities. Deferred tax assets are capitalised if there Other intangible assets include management rights is likely to be enough taxable profit to offset these and used for more than one accounting period and differences in the future. which exceed the thresholds defined by the Group are capitalized, and is written off over five years on a Pension fund commitments straight line basis. In Switzerland, the occupational benefit plans are Provisions covered by Allianz Suisse Insurance Company. All employees are insured in accordance with the law, The Group records "Provisions" to cover specific risks the foundation document and the regulations of the that are based on a past event that represent a prob- benefit plan. In the other countries, pension liabilities able obligation and for which the amount can be are covered by insurance companies or are posted reliably estimated. directly to the balance sheet. The employer contribution is included under "Personnel expenses".

GROUP 31 Habib Bank AG Zurich

Amounts due from / to related parties is responsible for ensuring independence and monitoring the performance of Group Internal Receivables and payables from governing bodies Audit and the external auditors. include credit lines to members of the Board of Di- rectors and members of General Management. These On an operational level, the Group operates with a transactions have been executed in accordance with three lines of defence model, whereby business and the current internal regulations on employee loans, revenue generation, risk management oversight and advances and deposits. risk control are performed by functions independent of one another. Receivables and payables from related parties are included in note 14. Furthermore, a clear distinction is made between "risk owners", "risk managers" and "risk controllers": • Risk owners keep oversight and bear the overall Explanations of risk management responsibility for the management of specific risk classes or risk types; Risk & Control Framework • Risk managers focus on the monitoring and proac- tive management of risk. They initiate risk man- The Group’s Risk & Control Framework is the corner- agement measures and can change the risk profile; stone for risk management and control. It provides the • Risk controllers independently monitor and assess basis to identify, assess and effectively manage risks risk as well as highlight deviations from target risk within the Group. Furthermore, the Risk & Control parameters and non-compliance with policies. Framework assigns the overall responsibility for a par- ticular risk class, defines who manages risk and who Risk management principles performs independent risk control. The following general principles are applied to Risk organisation maintain an appropriate balance between risk and return to: The Board of Directors’ responsibilities are the fol- • Assure the financial strength of the Group by moni- lowing: toring the risk exposures and avoiding potential • The Board of Directors is responsible for the strate- risk concentrations at individual exposure levels, gic direction, supervision and control of the Group, at specific portfolio levels and at an aggregate and for defining its overall risk tolerance by Group-wide level across all risk types; means of a risk appetite statement and overall risk • Protect the reputation through a sound risk cul- limits; ture characterised by a holistic and integrated view • The Risk & Control Committee supports the Board of risk, performance and reward, and through full of Directors in fulfilling its oversight responsibi- compliance with the Group’s standards and princi- lities by providing guidance regarding risk gov- ples; ernance and the Group’s risk profile, including • Systematically identify, classify and measure risks the regular review of major risk exposures and applying best practice; overall risk limits; • Thereby a Group risk assessment is performed, • The Audit Committee supports the Board of which encompasses all risk classes and subse- Directors in fulfilling its oversight responsibilities quently allows Management to focus on signifi- by monitoring General Management’s approach cant risk exposures; with respect to financial reporting, internal controls • Ensure management accountability, whereby busi- and accounting. Additionally, the Audit Committee ness line management owns all risks assumed

32 GROUP Habib Bank AG Zurich

and is responsible for the active management of all the volatility in market values according to the nature risk exposures to ensure that risk and return are and liquidity of the collateral. More than 41% of the balanced; Group’s credit exposure is secured by property and • Set up independent risk control functions or units, only 11% is unsecured. which monitor the effectiveness of risk management and oversee risk-taking activities; The Group’s credit risk appetite is defined and moni- • Disclose risks to the Board of Directors, regula- tored through a comprehensive system of credit limits. tors and other stakeholders in a comprehensive and transparent manner. The Group has its own rating system for corporate clients. Each credit is assessed as to the borrower’s Internal controls creditworthiness, collateral coverage and collateral quality, as well as the underlying transaction Internal controls are processes and instruments used rationale, business potential and any additional risk to monitor and control operational and other business mitigations. Personal credits are usually only granted risks. In order to continuously enhance the Group’s on a fully collateralised basis. Collateral coverage internal control system and the effectiveness of con- is monitored on a regular basis and according to the trols, results of actual control processes are reviewed prevailing market conditions. and the outcome of the Group’s operational risk management processes is taken into account. The An adequate and clear segregation of duties is es- organisational units responsible for internal controls tablished among the various organisational units work closely with other organisational units within involved in the acquisition of credit business, the the Group. analysis and approval of a credit request, and the sub- sequent administration. Credit risk Bank counterparties, issuers and sovereigns are ana- Credit risk arises from the possibility that a counter- lysed according to their financial performance and party (i.e. private and corporate clients, financial in- their external rating. Over 65% of the credit exposure stitutions as well as issuers or sovereigns) does not to financial institutions is of investment grade quality fulfil contractual obligations or the credit quality de- and the remaining 35% consists mainly of short-term teriorates. In order to manage potential default risk trade finance exposure in emerging markets, to which and other prevailing credit risks as effectively as pos- the Group has close links, and monitors the portfolio sible, it is divided into the following risk types: client with a set of country limits. credit risk, issuer credit risk, counterparty credit risk, country risk (including cross-border / transfer risk), Regarding non-performing loans, the Group is in a settlement risk and credit concentration risk. comfortable position. After taking the collateral at market value and the specific value adjustments The Group Credit Management Committee is respon- for default risks into account, the net unsecured and sible for credit risks and credit decisions, which may unprovided position at the end of December 2019 be delegated to the respective Country Credit Man- was only CHF 0.2 million. agement Committees. The Group manages its credit risk within a conservative framework by evaluating The Group has adopted IFRS 9 in six out of eight the creditworthiness of the borrowing counterparties, country operations and the remaining two will also setting appropriate credit limits and obtaining collat- be integrated over time. Therefore, the concept of eral as deemed necessary. For each collateral type a providing for latent credit risks is now established minimum haircut is defined in order to account for and will be perfected in 2020 and 2021. During 2019

GROUP 33 Habib Bank AG Zurich

CHF 5 million of latent credit risk provisions were that the liquid assets available could absorb projected added, reaching a total of CHF 128 million of ECL outflows in all cases. coverage. The Group has also undertaken an extensive external validation of all the existing models and The Group maintains a strong liquidity position, will address all findings during 2020. which is further supported by established repo functionalities. In addition, liquidity coverage ratio Country risks are monitored quarterly and are either targets have been defined for all operating Group protected by guarantees obtained from the World companies. Both funding and liquidity manage- Bank (MIGA) or provided for in accordance with the ment is performed on a decentralised basis. The guidelines of the Swiss Bankers Association using short-term liquidity disposition and liquidity situ- international ratings. ation of individual countries are monitored by the respective country treasury functions. In addition, Liquidity Risk liquidity reserves are held both at the Group and at the country level, and contingency funding plans are The Group applies a prudent approach to liquidity in place for the Group as well as all branches and risk management. The Group Asset & Liability Man- subsidiaries. agement Committee oversees liquidity and market risks regularly. Liquidity coverage ratio, in %

The Group grants advances and loans to clients both130 125 122.0 on a short-term basis and with tenors generally up 120 115.5 to five years. Funding is primarily obtained through115 112.2 deposits, which are mainly at sight or short term 110 100% deposits. Wholesale funding is not significant 105and deposits are well diversified. No single depositor100 accounts for more than 5% of the Group’s total de-95 posits. Excess liquidity is held as bank placements or90 financial investments. The latter primarily consist of85 80 bond portfolios of sovereign issuers or other issuers 31.12.17 31.12.18 31.12.19 of high quality.

The contractual maturities of the Group’s financial Market risk assets exceed the contractual maturities of the financial liabilities. However, when determining maturity The Group is exposed to interest rate risk, foreign ex- gaps, the stickiness of deposits or economic maturi- change risk and, to a very limited extent, to equity ties needs to be considered, which significantly re- and commodity risk. duces the contractual gaps. Furthermore, individual client groups in different countries will not act in the The Group’s market risk appetite is defined and moni- same way and at the same time. tored through a comprehensive system of market risk limits by the Group Asset & Liability Manage- In general, the Group is exposed to potential larger ment Committee. Furthermore, the Group regularly deposit outflows and sudden adverse market devel- performs scenarios and stress tests for interest rate, opments. Therefore, related scenarios have been ana- foreign exchange and equity risks based on pre- lysed as part of three liquidity stress tests performed vailing risk exposures. throughout the Group. The stress test results showed

34 GROUP Habib Bank AG Zurich

The Group is exposed to interest rate risk due to inter- The Group analyses the foreign exchange translation est periods set for advances made to clients exceeding exposure which arises from its investments in for- the interest periods for client deposits taken. To limit eign subsidiaries. The exchange rate movements on interest rate risk, most client advances are agreed on the net asset exposure of the subsidiaries give rise to a three or six month base rate plus a credit spread. revaluation gains and losses, which are included in consolidated equity. In general, the Group does not In addition, branches and subsidiaries have placed hedge net asset translation exposures with derivative excess liquidity in bank placements or in financial financial instruments. investments with tenors usually up to three to five years. The long-term fixed income instruments in- Operational risk cluded in the financial investment portfolio create interest rate risk exposure given the absence of long- Operational risk is defined as the risk of loss resulting term wholesale financing. from inadequate or failed internal processes, people, systems or from external events. The Group pursues limited trading activities only. They relate to short-term purchases and sales of lo- The Group makes use of six operational risk man- cal governmental securities in the local currency of a agement processes, which consist of key risk indi- Group entity for profit generation. cators, change risk assessment, risk self-assessment, scenario analysis, risk event management and issue The Group introduced the Interest Rate Risk in the management and action tracking. Banking Book (IRRBB) approach in 2019 and considers both the value and the earnings perspective. Furthermore, several types of risk mitigation meas- For both IRRBB and the combined trading book and ures are used and comprise control enhancement, banking book, Economic Value of Equity (EVE) model risk management, business continuity manage- sensitivity limits have been defined by the Board of ment and other mitigation measures (risk avoidance, Directors. EVE sensitivity limits are in place for all risk reduction and risk transfer). countries and limit adherence is monitored by the Group Asset & Liability Management Committee. To pro-actively address risks related to potential business disruptions, business impact analyses, cri- For foreign exchange transaction risks, the Group sis management teams and business continuity plans pursues a risk-averse approach and aims to keep the have been established for the Group as well as for all potential foreign exchange losses to a minimum. The branches and subsidiaries. Group does not pursue proprietary foreign exchange trading activities. The Group has developed a risk-based cyber risk strategy. The Chief Information Security Officer and Profits earned in the Bank’s branches are subject his dedicated team of cyber specialists monitor cyber to exchange rate risk up to their remittance to Ha- risk, perform risk assessments, vulnerability and pen- bib Bank AG Zurich, Zurich. These risks are moni- etration tests as well as run an information security tored at Head Office, and projected profits hedged campaign to raise employee awareness. as deemed appropriate. Capital and reserves held at the branches are also subject to foreign exchange risk Legal and compliance risk when they are held in local currencies. Any foreign exchange translation gain or loss on these capital and Legal risk is the risk that the Group may conduct reserves is taken to the income statement in the year activities or carry out transactions in which it is inad- in which it occurs. equately covered or is left exposed to potential liti-

GROUP 35 Habib Bank AG Zurich

gation. It is a possibility that failure to meet legal tential to have serious negative consequences for the requirements may result in unenforceable contracts, real economy. litigation, fines, penalties or claims for damages or other adverse consequences. The Group analyses on a regular basis factors which could have a destabilising impact on the financial Compliance risk is the risk of legal or regulatory system. These include among others, fragile eco- sanctions, material financial loss, or loss to the repu- nomic development, continued financial market un- tation the Group may suffer as a result of its failure certainty, numerous political crises, increased expo- to comply with laws, regulations, rules, related self- sure to cyber attacks, as well as the ever-increasing regulatory organisation standards and codes of con- extent and complexity of regulations. Based on this duct applicable to its banking activities. analysis, the Group implements mitigating measures wherever possible. Measures aimed at minimising legal and compliance risks include raising employee awareness of legal and regulatory issues through training and internal Events after the balance sheet date directives, and controls to ensure adherence to the legal and regulatory requirements within which the No events that would adversely affect the financial Group operates. statements included in this report occurred after the balance sheet date. For information's regarding In line with the development of the legal and regu- COVID-19, please refer to page 17 in the section latory environment of the industry, the Group has Outlook. consistently invested in personnel and technical resources to ensure adequate compliance coverage. A comprehensive framework of policies and regular specialised training sessions ensure that employees receive appropriate ongoing education and training in this area.

Reputation risk

Reputation risk is the risk that illegal, unethical or inappropriate behaviour by representatives of the Group, members of staff or clients will damage Habib Bank AG Zurich’s reputation, leading poten- tially to a loss of business, fines or penalties.

The Group has established a Code of Conduct and promotes transparency and ethical behaviour.

Systemic risk

Systemic risk can be defined as a risk of disruption to financial services that is caused by an impairment of all or parts of the financial system and has the po-

36 GROUP Habib Bank AG Zurich

Horseshoe Falls as viewed from Table Rock in Queen Victoria Park at Niagara Falls, Ontario, Canada GROUP 37 Habib Bank AG Zurich

Information on the balance sheet (consolidated)

1 Breakdown of securities financing transactions

in CHF 1'000 31.12.19 31.12.18 +/- % Book value of receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase transactions* 29'482 -100.0% Book value of obligations from cash collateral received in connection with securities lending and repurchase transactions* 578'646 94'181 514.4% Book value of securities lent in connection with securities lending or delivered as collateral in connection with securities borrowing as well as securities in own portfolio transferred in connection with repurchase agreements 578'646 94'181 514.4% - of which with unrestricted right to resell or pledge Fair value of securities received and serving as collateral in connection with securities lending or securities borrowed in connection with securities borrowing as well as securities received in connection with reverse repurchase agreements with an unrestricted right to resell or repledge - of which repledged securities - of which resold securities

* Before taking into consideration any netting agreements

38 GROUP Habib Bank AG Zurich

2 Overview of collateral for loans / receivables and off-balance sheet transactions, as well as impaired loans / receivables

Type of collateral Secured by Other in CHF 1'000 mortgage collateral Unsecured Total Loans (before netting with value adjustments) Amounts due from customers 1'162'892 1'791'015 425'572 3'379'479 Mortgage loans 400'229 94 400'323 - Residential and commercial property 346'519 94 346'613 - Commercial and industrial premises 53'710 53'710 Total loans (before netting with value adjustments) 31.12.19 1'563'121 1'791'108 425'572 3'779'801 31.12.18 1'677'618 1'668'379 449'399 3'795'396

Total loans (after netting with value adjustments) 31.12.19 1'462'138 1'705'361 377'933 3'545'432 31.12.18 1'561'149 1'587'251 397'855 3'546'255

Off-balance sheet Contingent liabilities 119'742 1'263'374 148'185 1'531'301 Irrevocable commitments 1'060 1'060 Credit commitments 25'778 119'151 28'370 173'299 Total off-balance sheet 31.12.19 145'519 1'382'525 177'616 1'705'660 31.12.18 114'234 1'177'779 139'849 1'431'862

Estimated liquidation Specific Gross debt value of Net debt value in CHF 1'000 amount collateral amount adjustments Impaired loans / receivables Total impaired loans / receivables 31.12.19 270'651 101'554 169'097 165'719 31.12.18 291'891 118'673 173'218 174'335

GROUP 39 Habib Bank AG Zurich

3 Trading portfolios and other financial instruments at fair value

in CHF 1'000 31.12.19 31.12.18 +/- % Assets Trading portfolio assets Debt securities, money market securities / transactions - of which listed Equity securities Precious metals and commodities Other trading portfolio assets Total trading portfolio assets

Other financial instruments at fair value Debt securities 2'538'097 2'140'682 18.6% Structured products Other 7'630 8'021 -4.9% Total other financial instruments at fair value 2'545'727 2'148'703 18.5%

Total assets 2'545'727 2'148'703 18.5% - of which determined using a valuation model - of which securities eligible for repo transactions in accordance with liquidity requirements

The Group has no trading portfolio liabilities.

40 GROUP Habib Bank AG Zurich

4 Presentation of derivative financial instruments (assets and liabilities)

Trading instruments Positive Negative replacement replacement Contract in CHF 1'000 values values volume Interest rate instruments

Foreign exchange / precious metals Forward contracts 29'728 51'074 7'085'679

Equity securities / indices

Credit derivatives

Total before netting agreements Total at 31.12.19 29'728 51'074 7'085'679 - of which determined using a valuation model Total at 31.12.18 30'825 26'510 3'698'070 - of which determined using a valuation model

Positive Negative replacement replacement values values in CHF 1'000 (cumulative) (cumulative) After netting agreements Total at 31.12.19 29'728 51'074 at 31.12.18 30'825 26'510

Breakdown by counterparty Central Banks and in CHF 1'000 clearing houses securities dealers Other customers Positive replacement values (after netting agreements) Total at 31.12.19 25'115 4'612 at 31.12.18 7'827 14'884 8'114

The Group has no hedging instruments.

GROUP 41 Habib Bank AG Zurich

5 Financial investments

Book value Fair value in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Debt securities 1'465'619 1'383'222 1'466'202 1'374'876 - of which intended to be held until maturity 1'156'358 1'130'896 1'144'826 1'122'549 - of which not intended to be held until maturity (available for sale) 309'261 252'326 321'376 252'327 Equity securities 490 518 507 518 - of which qualified participations Precious metals 1'335 1'305 1'481 1'305 Real estate 2'774 3'495 4'355 5'583 Total 1'470'218 1'388'540 1'472'545 1'382'282 - of which securities eligible for repo transactions in accordance with liquidity requirements 100'822 155'292

Counterparties by rating

in CHF 1'000 AAA AA A BBB BB to B Unrated Debt securities Book values at 31.12.19 105'064 92'303 429'321 641'458 194'417 7'655 at 31.12.18 138'885 87'312 390'895 582'356 176'029 13'063

Rating category is based on the sovereign foreign currency long-term rating system from S&P.

42 GROUP Habib Bank AG Zurich

6 Disclosure of consolidated companies in which the Bank holds a permanent direct or indirect significant participation

Share of Share of Business Company capital capital votes Held Held activity (in 000's) (in %) (in %) directly indirectly Company name and domicile Habib Canadian Bank, Toronto, Canada Bank CAD 30'000 100% 100% x HBZ Bank Ltd., Durban, South Africa Bank ZAR 50'000 100% 100% x Habib European Limited, Douglas, Company in GBP 1 100% 100% x Isle of Man liquidation HBZ Services FZ-LLC, Dubai, Service centre AED 300 100% 100% x United Arab Emirates Habib Metropolitan Bank Ltd., Karachi, Pakistan Bank PKR 10'478'315 51% 51% x Habib Bank Zurich (Hong Kong) Ltd., Restricted HKD 300'000 51% 51% x Hong Kong licence Bank Habib Bank Zurich Plc, London, Bank GBP 60'000 100% 100% x United Kingdom HBZ Services AG, Zug, Switzerland Service centre CHF 500 100% 100% x Habib Metropolitan Financial Services Ltd., Broker PKR 300'000 51% 51% x Karachi, Pakistan Habib Metropolitan Modaraba Management Modaraba PKR 350'000 51% 51% x Company Ltd., Karachi, Pakistan management First Habib Modaraba Ltd., Karachi, Pakistan Leasing, PKR 1'008'000 5% 100% x Musharaka and Murabaha financing Habib Metro Modaraba, Karachi, Pakistan Car financing PKR 300'000 36% 100% x and Ijarah / rental and Musharakah financing

HBZ Services (Private) Ltd., Pakistan Service centre PKR 100 100% 100% x

GROUP 43 Habib Bank AG Zurich

7 Presentation of non-consolidated participations

Reporting year Accumulated value adjustments and changes in book value Book value at Book value at Market value at in CHF 1'000 Acquisition cost (equity method) 31.12.18 Reclassifications Additions Disposals Value adjustments 31.12.19 31.12.19 Other non-consolidated participation without market value - S.W.I.F.T. SCRL, Belgium 77 77 77 Total 77 77 77

8 Presentation of tangible fixed assets

Reporting year Accumulated Book value at Book value at in CHF 1'000 Acquisition cost depreciation 31.12.18 Reclassifications Additions Disposals* Depreciation Reversals 31.12.19 Bank buildings and residential apartments 106'797 -42'137 64'660 98 8'800 -2'395 -8'257 62'906 Other real estate 23'505 -16'901 6'605 2'222 -612 -1'064 7'150 Proprietary or separately acquired software 4'507 -2'936 1'571 250 -65 -972 784 Other tangible fixed assets 50'824 -37'193 13'631 -98 3'271 -227 -3'713 12'865 Tangible assets acquired under finance leases - of which bank buildings - of which other real estate - of which other tangible fixed assets Total 185'633 -99'166 86'467 0 14'544 -3'300 -14'005 83'705

* Including net of foreign currency adjustments

44 GROUP Habib Bank AG Zurich

* Including net of foreign currency adjustments

GROUP 45 Habib Bank AG Zurich

9 Intangible assets

Reporting year Accumu- lated Book Book Cost amorti- value at Amorti- value at in CHF 1'000 value sations 31.12.18 Additions Disposals* sation 31.12.19 Goodwill Patents Licenses Other intangible assets 293 293 -24 -156 113 Total 293 293 -24 -156 113

* Including net of foreign currency adjustments

10 Other assets and other liabilities

Other assets Other liabilities in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Compensation account Deferred income tax recognised as assets 28'691 35'076 Others 55'918 46'079 33'658 28'252 Total 84'609 81'155 33'658 28'252

46 GROUP Habib Bank AG Zurich

11 Assets pledged or assigned to secure own commitments and assets under reservation of ownership*

Book value Effective commitments in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Amounts due from banks 762 1'140 271 563 Financial investments 10'666 10'929 Total pledged / assigned assets 11'428 12'069 271 563

Assets under reservation of ownership 70 70

* Excluding securities financing transactions

12 Liabilities relating to own pension schemes

in CHF 1'000 31.12.19 31.12.18 Payables to employee benefit plans 88 63

Commitments to own pension and welfare plans

The Group does not maintain its own pension funds. economic liabilities that exceed the contributions set The occupational benefit plans in the countries are cov- by the regulations of the benefit plan, nor economic ered by insurance companies. All employees are insured benefits for the Group. In addition, during both the in accordance with the law, the foundation document reporting year and during the previous year, there were and the regulations of the benefit plan. no non-committed plans, nor was there an employer- paid contribution reserve, such that the expenses shown In accordance with the contractual and legal conditions in the income statement equal the actual expenses for of the benefit plans in the countries, there can be neither pension and welfare plans for the reporting period.

GROUP 47 Habib Bank AG Zurich

13 Presentation of value adjustments and provisions, reserves for general banking risks, and changes therein during the current year

Other allocations to (withdrawals from) the reserves for general banking for Use in conformity minority sharehold- Balance at with designated ings in shareholders' Currency Past-due interest, New creations Balance at in CHF 1'000 31.12.18 purpose Reclassifications equity differences recoveries charged to income Releases to income 31.12.19 Provisions for deferred taxes 1'029 -90 -462 477 Provisions for pension benefit obligations Provisions for latent credit risks 2'283 -50 -221 52 -481 1'584 Provisions for other business risks 1'671 -64 -185 865 -7 2'280 Provisions for restructuring Other provisions 1'471 -175 146 1'442 Total provisions 6'454 -113 -670 1'063 -950 5'783

Reserves for general banking risks 447'463 -8'849 17'942 456'556

Value adjustments for default and latent credit risks 255'267 -4'158 -15'204 7'483 12'622 -12'724 243'286 - of which value adjustments for default risks in respect of impaired loans / receivables 174'335 -4'219 155 -13'025 7'483 5'548 -4'558 165'719 - of which value adjustments for default risks in respect of financial investments 2'474 -95 2'649 -750 4'279 - of which value adjustments for latent credit risks 78'458 62 -155 -2'084 4'425 -7'417 73'289

48 GROUP Habib Bank AG Zurich

Reserves for general banking risks 447'463 -8'849 17'942 456'556

GROUP 49 Habib Bank AG Zurich

14 Amounts due from and due to related parties

Amounts due from Amounts due to in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Holders of qualified participations 108'500 104'158 Linked companies Transactions with members of governing bodies 1'632 2'146 12'624 20'777 Other related parties Total 1'632 2'146 121'124 124'935

50 GROUP Habib Bank AG Zurich

15 Maturity structure of financial instruments

Due within within 12 Cancel- within 3 to 12 months to after No in CHF 1'000 At sight lable 3 months months 5 years 5 years maturity Total Asset / financial instruments Liquid assets 1'439'875 1'439'875 Amounts due from banks 338'418 15'046 1'192'226 247'941 22'383 1'816'013 Amounts due from securities financing transactions Amounts due from customers 516'825 3'831 1'326'989 870'030 353'273 113'436 3'184'384 Mortgage loans 18'919 83'184 34'994 117'860 106'091 361'048 Positive replacement values of derivative financial instruments 29'728 29'728 Other financial instruments at fair value 2'545'727 2'545'727 Financial investments 180'123 158'881 123'884 809'065 198'265 1'470'218 Total at 31.12.19 5'069'614 18'877 2'761'280 1'276'849 1'302'581 417'792 10'846'992 at 31.12.18 4'207'748 36'660 2'668'267 1'318'329 1'327'594 424'834 3'495 9'986'927

Debt capital / financial instruments Amounts due to banks 219'183 269'752 71'233 560'168 Liabilities from securities financing transactions 558'646 20'000 578'646 Amounts due in respect of customer deposits 4'923'220 505'275 1'846'029 1'155'310 152'126 1'820 8'583'781 Negative replacement values of derivative financial instruments 51'074 51'074 Total at 31.12.19 5'752'124 505'275 2'135'781 1'226'543 152'126 1'820 9'773'669 at 31.12.18 4'852'813 395'219 2'324'052 1'224'108 177'729 3'012 8'976'933

GROUP 51 Habib Bank AG Zurich

16 Assets and liabilities by domestic and foreign origin in accordance with domicile principle

Domestic Foreign Domestic Foreign in CHF 1'000 31.12.19 31.12.18 Assets Liquid assets 4'137 1'435'738 50'743 1'081'419 Amounts due from banks 124'400 1'691'614 133'482 1'577'478 Amounts due from securities financing transactions 29'482 Amounts due from customers 18'596 3'165'788 23'376 3'048'732 Mortgage loans 244 360'804 474'147 Positive replacement values of derivative financial instruments 33 29'695 408 30'417 Other financial instruments at fair value 2'545'727 2'148'703 Financial investments 171'541 1'298'677 159'376 1'229'164 Accrued income and prepaid expenses 5'563 142'041 4'331 146'206 Non-consolidated participations 77 77 Tangible fixed assets 9'424 74'281 10'527 75'940 Intangible assets 113 293 Other assets 767 83'842 832 80'323 Total assets 334'704 10'828'396 383'075 9'922'381

Liabilities Amounts due to banks 181 559'987 997 433'713 Liabilities from securities financing transactions 20'000 558'646 5'000 89'181 Amounts due in respect of customer deposits 155'899 8'427'881 173'245 8'248'287 Negative replacement values of derivative financial instruments 1'125 49'949 794 25'716 Accrued expenses and deferred income 3'018 150'875 4'054 142'082 Other liabilities 4'153 29'505 5'952 22'298 Provisions 114 5'670 175 6'281 Reserves for general banking risks 85'142 371'414 100'292 347'171 Bank's capital 150'000 150'000 Retained earnings reserves 317'555 289'439 Minority interest in equity 180'437 181'079 Group profit -6'863 98'410 12'750 66'950 Total liabilities 730'326 10'432'774 742'698 9'562'758

52 GROUP Habib Bank AG Zurich

17 Breakdown of total assets by country or group of countries (domicile principle)

31.12.19 31.12.18 in CHF 1'000 Shares as % in CHF 1'000 Shares as % Assets

Europe 1'547'588 13.9% 1'472'161 14.3% - of which Switzerland 334'704 3.0% 383'075 3.7% United Kingdom 875'725 7.8% 746'636 7.2% Others 337'159 3.0% 342'450 3.3%

North America 407'376 3.6% 332'626 3.2%

Asia 8'282'712 74.2% 7'564'879 73.5% - of which United Arab Emirates 2'323'387 20.8% 2'272'572 22.1% Pakistan 5'244'297 47.0% 4'624'537 44.9% Others 715'028 6.4% 667'770 6.5%

Other countries 925'424 8.3% 935'790 9.0% - of which South Africa 388'625 3.5% 374'769 3.6% Others 536'799 4.8% 561'021 5.4%

Total assets 11'163'100 100.0% 10'305'456 100.0%

18 Breakdown of total assets by credit rating of country groups (risk domicile view)

Net foreign exposures Net foreign exposures 31.12.19 31.12.18 Standard & Poor's rating in CHF 1'000 Shares as % in CHF 1'000 Shares as % AAA 460'631 4.3% 564'252 5.7% AA+ to AA- 1'524'391 14.1% 1'343'215 13.5% A+ to A- 2'490'574 23.1% 2'410'288 24.2% BBB+ to BBB- 94'439 0.9% 91'051 0.9% BB+ to B- 6'099'532 56.5% 5'346'181 53.7% CCC 0.0% Unrated 120'399 1.1% 196'285 2.0% Total 10'789'965 100.0% 9'951'272 100.0%

Rating category is based on the sovereign foreign currency long-term rating system from S&P.

GROUP 53 Habib Bank AG Zurich

19 Balance sheet by currencies

in CHF 1'000 CHF USD GBP AED PKR Other Total Assets Liquid assets 50'862 227'620 76'602 773'446 295'883 15'462 1'439'875 Amounts due from banks 3'229 621'782 167'153 571'324 188'690 263'836 1'816'013 Amounts due from customers 20'969 405'857 555'075 541'415 1'425'086 235'983 3'184'384 Mortgage loans 224'149 18'022 118'877 361'048 Trading portfolio assets Positive replacement values for derivative financial instruments 33 453 27'863 1'379 29'728 Other financial instruments at fair value 2'545'727 2'545'727 Financial investments 317'123 499'701 91'530 228'474 333'389 1'470'218 Accrued income and prepaid expenses 3'617 2'198 1'652 27'128 107'379 5'630 147'604 Non-consolidated participations 77 77 Tangible fixed assets 9'424 127 7'239 20'413 28'605 17'897 83'705 Intangible assets 113 113 Other assets 2'138 1'716 4'464 13'305 59'578 3'408 84'609 Total assets shown in balance sheet 407'472 1'759'001 904'167 2'171'179 4'925'419 995'862 11'163'100 Delivery entitlements from spot exchange, forward forex and forex options transactions 1'076 1'908'091 76'130 1'410'868 146'673 3'542'839 Total assets 408'549 3'667'092 980'297 2'171'179 6'336'287 1'142'535 14'705'939

54 GROUP Habib Bank AG Zurich

in CHF 1'000 CHF USD GBP AED PKR Other Total Liabilities Amounts due to banks 1'918 100'507 7'150 22'186 417'577 10'830 560'168 Liabilities from securities financing transactions 20'000 558'646 578'646 Amounts due in respect of customer deposits 67'452 1'958'406 831'465 1'693'009 3'191'077 842'371 8'583'781 Negative replacement values of derivative financial instruments 1'125 396 48'222 1'331 51'074 Accrued expenses and deferred income 3'018 70 6'215 21'142 110'488 12'961 153'894 Other liabilities 1'077 585 2'583 11'584 16'230 1'599 33'658 Provisions 114 1 843 4'763 63 5'783 Reserves for general banking risks 116'397 499 331'488 8'172 456'556 Bank's capital 150'000 150'000 Retained earnings reserves 317'555 317'555 Minority interest in equity 147'622 32'816 180'437 Group profit -6'863 3'756 45'227 45'171 4'256 91'547 Total liabilities shown in balance sheet 671'680 2'059'681 852'064 2'125'478 4'547'969 906'227 11'163'100 Delivery obligations from spot exchange, forward forex and forex options transactions 88'503 1'575'249 40'276 674 1'699'669 138'468 3'542'839 Total liabilities 760'183 3'634'930 892'340 2'126'152 6'247'637 1'044'696 14'705'939

Net position per currency at 31.12.19 -351'634 32'162 87'957 45'027 88'650 97'840 at 31.12.18 -315'027 21'155 83'188 14'932 97'403 98'349

GROUP 55 Habib Bank AG Zurich

Information on the off-balance sheet transactions (consolidated)

20 Breakdown of contingent liabilities and contingent assets

in CHF 1'000 31.12.19 31.12.18 +/- % Guarantees to secure credits and similar 643'264 520'790 23.5% Irrevocable commitments arising from documentary letters of credit 888'038 784'494 13.2% Total contingent liabilities 1'531'301 1'305'284 17.3%

Contingent assets arising from tax losses carried forward 4'177 4'662 -10.4% Total contingent assets 4'177 4'662 -10.4%

21 Breakdown of credit commitments

in CHF 1'000 31.12.19 31.12.18 +/- % Commitments arising from acceptances 156'812 116'706 34.4% Other credit commitments 16'487 8'776 87.9% Total credit commitments 173'299 125'482 38.1%

22 Breakdown of fiduciary transactions

in CHF 1'000 31.12.19 31.12.18 +/- % Fiduciary investments with third-party companies 308'693 252'780 22.1% Fiduciary loans 2'498 2'648 -5.7% Total fiduciary transactions 311'192 255'428 21.8%

56 GROUP Habib Bank AG Zurich

Information on the income statement (consolidated)

23 Breakdown of the result from trading activities and the fair value option

in CHF 1'000 2019 2018 +/- % Result from trading activities from Interest rate instruments (incl. funds) 18'970 -80'382 -123.6% Unrealised forex gains / (losses) on reserves held in foreign currencies -7'070 3'656 -293.4% Foreign currencies 32'841 24'354 34.8% Commodities / precious metals 29 7 308.8% Total result from trading activities 44'770 -52'365 -185.5% - of which from the fair value option on assets 18'970 -80'382 -123.6%

24 Breakdown of personnel expenses

in CHF 1'000 2019 2018 +/- % Salaries (meeting attendances fees, fixed compensation, salaries and benefits) -129'653 -130'739 -0.8% - of which, expenses relating to share-based compensation and alternative forms of variable compensation Social insurance obligations -10'101 -9'629 4.9% Other personnel expenses -6'323 -5'723 10.5% Total personnel expenses -146'076 -146'091 0.0%

GROUP 57 Habib Bank AG Zurich

25 Breakdown of general and administrative expenses

in CHF 1'000 2019 2018 +/- % Office space expenses -21'252 -21'778 -2.4% Expenses for information and communications technology -14'689 -11'288 30.1% Expenses for vehicles, equipment, furniture and other fixtures, as well as operating lease expenses -5'315 -6'234 -14.7% Fees of audit firm(s) -2'188 -2'205 -0.7% - of which for financial and regulatory audits -1'528 -1'862 -18.0% - of which for other services -661 -343 92.7% Other operating expenses -37'459 -36'788 1.8% Total general and administrative expenses -80'903 -78'293 3.3%

26 Breakdown of extraordinary income and expenses

in CHF 1'000 2019 2018 +/- % Extraordinary income Release of provisions no longer required Profit on sale of fixed assets 216 2'126 -89.8% Recoveries and others 600 112 436.1% Total extraordinary income 817 2'238 -63.5%

Extraordinary expenses Other -3 -33 -90.4% Total extraordinary expenses -3 -33 -90.4%

58 GROUP Habib Bank AG Zurich

27 Presentation of the operating result broken down according to domestic and foreign origin, according to the principle of permanent establishment

Domestic Foreign Domestic Foreign in CHF 1'000 2019 2018 Net result from interest operations 15'472 264'424 15'445 195'036 Result from commission business and services 6'175 69'807 6'705 68'310 Result from trading activities and the fair value option -6'626 51'396 4'287 -56'652 Other result from other ordinary activities 24'345 -17'182 30'440 -34'354 Personnel expenses -25'430 -120'647 -24'828 -121'263 General and administrative expenses -17'364 -63'540 -14'546 -63'747 Value adjustments on participations, depreciation and amortisation on tangible fixed and intangible assets -1'610 -12'395 -1'759 -12'307 Changes to provisions and other value adjustments, and losses -20 -555 -144 -2'273 Operating result -5'057 171'309 15'600 -27'250 Taxes -2'136 -55'441 -2'924 -19'318 Group profit -6'863 98'410 12'750 66'950

28 Presentation of current taxes, deferred taxes and disclosure of the tax rate

in CHF 1'000 2019 2018 +/- % Current tax expenses* -54'192 -18'152 198.5% Deferred tax expenses -3'384 -4'090 -17.3% Total taxes -57'576 -22'242 158.9%

Weighted average tax rate (on Group profit before taxes) 28.7% 28.9%

* The impact of changes in losses carried forward on income taxes (e.g. occurrence, use, reassessment, expiry) resulted in 0.2% higher income taxes for the period.

GROUP 59 Habib Bank AG Zurich

Report of the Statutory Auditor

To the General Meeting of Habib Bank AG Zurich Zurich

Report of the Statutory Auditor on the Consolidated Financial Statements

As statutory auditor, we have audited the consolidated financial statements of Habib Bank AG Zurich, which comprise the balance sheet, income statement, cash flow statement, statement of changes in equity and notes (pages 20 to 59 of the annual report) for the year ended 31 December 2019.

Board of Directors' Responsibility The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with the provisions governing the preparation of financial statements for Banks and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2019 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the provisions governing the preparation of financial statements for Banks and comply with Swiss law.

Report on Other Legal Requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

KPMG AG

Ertugrul Tüfekçi Mirko Liberto Licensed Audit Expert Licensed Audit Expert Auditor in Charge

Zurich, 29 April 2020

KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. EXPERTsuisse Certified Company

60 GROUP Habib Bank AG Zurich

Financial statements of the Parent Bank

Parent Bank financial statements Balance sheet 62 Off-balance sheet transactions 63 Appropriation of profit / coverage of losses / other distributions 63 Income statement 64 Statement of changes in equity 66 Notes to the parent bank financial statements 67 Report of the Statutory Auditor 82

PARENT BANK 61 Habib Bank AG Zurich

Balance sheet

in CHF 1'000 Note 31.12.19 31.12.18 +/- % Assets Liquid assets 916'186 704'322 30.1% Amounts due from banks 1'188'120 1'277'619 -7.0% Amounts due from customers 2 772'107 838'471 -7.9% Mortgage loans 2 225'049 267'265 -15.8% Positive replacement values of derivative financial instruments 3 33 432 -92.5% Financial investments 4 922'633 847'897 8.8% Accrued income and prepaid expenses 34'668 31'977 8.4% Participations 327'225 326'914 0.1% Tangible fixed assets 28'417 30'879 -8.0% Other assets 5 18'179 19'044 -4.5% Total assets 4'432'616 4'344'820 2.0% Total subordinated claims 30'419 24'983 21.8% - of which subject to conversion and / or debt waiver

Liabilities Amounts due to banks 93'144 66'848 39.3% Liabilities from securities financing transactions 1 20'000 5'000 300.0% Amounts due in respect of customer deposits 3'297'574 3'280'119 0.5% Negative replacement values of derivative financial instruments 3 1'125 805 39.8% Accrued expenses and deferred income 28'281 28'274 0.0% Other liabilities 5 14'410 15'209 -5.3% Provisions 7 957 180 431.5% Reserves for general banking risks 7 441'158 441'273 0.0% Bank's capital 8 150'000 150'000 0.0% Statutory retained earnings reserves 81'850 80'550 1.6% Voluntary retained earnings reserves 246'449 233'166 5.7% Profit carried forward 14'096 89 Profit 43'571 43'307 0.6% Total liabilities 4'432'616 4'344'820 2.0% Total subordinated liabilities - of which subject to conversion and / or debt waiver

62 PARENT BANK Habib Bank AG Zurich

Off-balance sheet transactions

in CHF 1'000 Note 31.12.19 31.12.18 +/- % Off-balance sheet transactions Contingent liabilities 216'407 221'276 -2.2% Irrevocable commitments 1'060 1'096 -3.3% Credit commitments 13 33'379 19'155 74.3%

Appropriation of profit / coverage of losses / other distributions

The Board of Directors will submit the following proposal to the General Meeting of Shareholders in respect of the distribution of profit.

in CHF 1'000 31.12.19 31.12.18 +/- % Profit (result for the period) 43'571 43'307 0.6% Profit carried forward 14'096 89 Distributable profit 57'667 43'396 32.9%

Appropriation of profit - Allocation to statutory retained earnings reserves -1'300 -1'300 0.0% - Allocation to voluntary retained earnings reserves -13'000 -13'000 0.0% - Distribution of dividend from distributable profit -15'000 -15'000 0.0% Profit carried forward 28'367 14'096 101.2%

PARENT BANK 63 Habib Bank AG Zurich

Income statement

in CHF 1'000 Note 2019 2018 +/- % Result from interest operations Interest and discount income 100'379 94'369 6.4% Interest and dividend income from financial investments 27'842 25'580 8.8% Interest expense -21'124 -17'752 19.0% Gross result from interest operations 107'097 102'197 4.8%

Changes in value adjustments for default risks and losses from interest operations 2'352 -71'913 -103.3% Subtotal net result from interest operations 109'450 30'284 261.4%

Result from commission business and services Commission income from securities trading and investment activities 4'655 4'714 -1.3% Commission income from lending activities 12'283 11'899 3.2% Commission income from other services 18'118 19'040 -4.8% Commission expense -2'823 -1'978 42.7% Subtotal result from commission business and services 32'232 33'675 -4.3%

Result from trading activities and the fair value option 15 2'091 12'768 -83.6%

Other result from ordinary activities Result from the disposal of financial investments 225 -881 -125.5% Income from participations 12'748 18'262 -30.2% Result from real estate Other ordinary income 12'442 6'723 85.1% Other ordinary expenses -4'352 -100.0% Subtotal other result from ordinary activities 25'414 19'752 28.7%

Operating income 169'187 96'479 75.4%

64 PARENT BANK Habib Bank AG Zurich

in CHF 1'000 Note 2019 2018 +/- % Operating expenses Personnel expenses 16 -65'167 -56'226 15.9% General and administrative expenses 17 -42'793 -46'905 -8.8% Subtotal operating expenses -107'960 -103'131 4.7%

Value adjustments on participations, depreciation and amortisation on tangible fixed assets and intangible assets -4'470 -4'002 11.7% Changes to provisions and other value adjustments and losses -838 -1'782 -53.0%

Operating result 55'919 -12'436 -549.7%

Extraordinary income 18 475 133 257.1% Extraordinary expenses 18 -4 -33 -88.4% Changes in reserves for general banking risks 116 69'653 -99.8% Taxes 19 -12'935 -14'010 -7.7%

Profit 43'571 43'307 0.6%

PARENT BANK 65 Habib Bank AG Zurich

Statement of changes in equity

Voluntary Statutory Reserves for retained retained general earnings and Bank's earnings banking profit carried in CHF 1'000 capital reserves risks forward Profit Total At 1.1.18 150'000 80'500 510'926 233'202 8'429 983'057 Transfer of profits to retained earnings 50 300 -350 Currency translation differences -326 -326 Dividends and other distributions 79 -8'079 -8'000 Other allocations to / (transfers from) the reserves for general banking risks -69'653 -69'653 Other allocations to / (transfers from) other reserves Profit 43'307 43'307 At 31.12.18 150'000 80'550 441'273 233'255 43'307 948'385

At 1.1.19 150'000 80'550 441'273 233'255 43'307 948'385 Transfer of profits to retained earnings 1'300 13'000 -14'300 Currency translation differences 282 282 Dividends and other distributions 14'007 -29'007 -15'000 Other allocations to / (transfers from) the reserves for general banking risks -116 -116 Other allocations to / (transfers from) other reserves Profit 43'571 43'571 At 31.12.19 150'000 81'850 441'158 260'544 43'571 977'123

66 PARENT BANK Habib Bank AG Zurich

Notes to the parent bank financial statements

Under Art. 36 of the Swiss Ordinance on Banks and The accounting and valuation principles of the parent Savings Banks, institutions that publish consolidated bank are generally based on those from the Group. financial statements are exempt from disclosing certain information in the parent bank financial statements. The information relating to the portrait, the accounting and valuation principles, the explanations of risk management as well as the events after the balance sheet date disclosed in the consolidated financial statements apply to the financial statements of the parent bank.

PARENT BANK 67 Habib Bank AG Zurich

Information on the balance sheet

1 Breakdown of securities financing transactions

in CHF 1'000 31.12.19 31.12.18 +/- % Book value of receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase transactions* Book value of obligations from cash collateral received in connection with securities lending and repurchase transactions* 20'000 5'000 300.0% Book value of securities lent in connection with securities lending or delivered as collateral in connection with securities borrowing as well as securities in own portfolio transferred in connection with repurchase transactions 20'000 5'000 300.0% - of which with unrestricted right to resell or pledge Fair value of securities serving as collateral posted for securities lending or securities borrowed or securities received in connection with reverse repurchase transactions with an unrestricted right to resell or repledge them - of which repledged securities - of which resold securities

* Before taking into consideration any netting agreements

68 PARENT BANK Habib Bank AG Zurich

2 Overview of collateral for loans / receivables and off-balance sheet transactions, as well as impaired loans / receivables

Type of collateral Secured by Other in CHF 1'000 mortgage collateral Unsecured Total Loans (before netting with value adjustments) Due from customers 150'922 337'246 363'646 851'815 Mortgage loans 264'143 264'143 - Residential and commercial property 264'143 264'143 - Commercial premises Total loans (before netting with value adjustments) 31.12.19 415'066 337'246 363'646 1'115'958 31.12.18 513'543 310'120 404'208 1'227'871

Total loans (after netting with value adjustments) 31.12.19 371'271 303'901 321'983 997'156 31.12.18 462'971 285'531 357'234 1'105'736

Off-balance sheet Contingent liabilities 5'010 100'910 110'486 216'407 Irrevocable commitments 1'060 1'060 Credit commitments 391 8'510 24'478 33'379 Total off-balance sheet 31.12.19 5'401 109'420 136'024 250'847 31.12.18 6'408 121'723 113'396 241'527

Estimated liquidation Specific Gross debt value of the Net debt value in CHF 1'000 amount collateral amount adjustments Impaired loans / receivables Total impaired loans / receivables 31.12.19 106'417 42'864 63'553 64'545 31.12.18 109'374 51'292 58'082 60'920

PARENT BANK 69 Habib Bank AG Zurich Habib Bank AG Zurich

The Bourke's Luck Potholes, South Africa PARENT BANK BANK 70 Habib Bank AG Zurich

3 Presentation of derivative financial instruments

Trading instruments Positive Negative replacement replacement Contract in CHF 1'000 values values volume Interest rate instruments

Foreign exchange / precious metals Forward contracts 33 1'125 185'248

Equity interests / indices

Credit derivatives

Total before taking into consideration netting agreements Total at 31.12.19 33 1'125 185'248 - of which determined by using a valuation model Total at 31.12.18 432 805 289'841 - of which determined by using a valuation model

Positive Negative replacement replacement value value in CHF 1'000 (accumulated) (accumulated) After netting agreements Total at 31.12.19 33 1'125 at 31.12.18 432 805

Breakdown by counterparty

Central Banks and in CHF 1'000 clearing parties securities dealers Other clients Positive replacement values (after netting agreements) Total at 31.12.19 33 at 31.12.18 432

The Parent Bank has no hedging instruments.

PARENT BANK 71 Habib Bank AG Zurich

4 Financial investments

Book value Fair value in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Debt instruments 920'983 846'271 932'069 838'475 - of which intended to be held until maturity 611'722 593'944 610'693 586'148 - of which not intended to be held until maturity (available for sale) 309'261 252'327 321'376 252'327 Equity interests 315 321 315 321 Precious metals 1'335 1'305 1'481 1'305 Real estate Total 922'633 847'897 933'865 840'101 - of which securities allowed for repo transactions in accordance with liquidity requirements 100'822 111'786

Counterparties by rating

in CHF 1'000 AAA AA A BBB BB to B Unrated Debt securities Book values at 31.12.19 55'610 77'395 215'328 397'959 168'714 7'627 at 31.12.18 65'997 68'200 236'624 294'655 174'068 8'353

Rating category is based on the sovereign foreign currency long-term rating system from S&P.

72 PARENT BANK Habib Bank AG Zurich

5 Other assets and other liabilities

Other assets Other liabilities in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Compensation account Deferred income taxes recognised as assets 13'598 12'944 Others 4'581 6'100 14'410 15'209 Total 18'179 19'044 14'410 15'209

6 Assets pledged or assigned to secure own commitments and assets under reservation of ownership*

Book value Effective commitments in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Amounts due from banks 271 563 271 563 Financial investments Total pledged / assigned assets 271 563 271 563

Assets under reservation of ownership 70 70

* Excluding securities financing transactions

PARENT BANK 73 Habib Bank AG Zurich

7 Presentation of value adjustments and provisions, reserves for general banking risks, and changes therein during the current year

Use in conformity Balance at with designated Currency Past-due interest, New creations Releases to Balance at in CHF 1'000 31.12.18 purpose Reclassifications differences recoveries charged to income income 31.12.19 Provisions for deferred taxes Provisions for pension fund obligations Provisions for latent credit risks Provisions for other business risks 180 -42 -20 845 -7 957 Provisions for restructuring Other provisions Total provisions 180 -42 -20 845 -7 957

Reserves for general banking risks 441'273 -116 441'158

Value adjustments for default and latent credit risks 127'649 -1'740 -2'210 5'142 6'835 -9'188 126'489 - of which value adjustments for default risks in respect of impaired loans / receivables 60'920 -1'740 155 -1'129 5'142 4'186 -2'989 64'545 - of which value adjustments for default risks in respect of financial investments 2'473 -95 2'649 -750 4'278 - of which value adjustments for latent credit risks 64'256 -155 -987 -5'448 57'666

74 PARENT BANK Habib Bank AG Zurich

Reserves for general banking risks 441'273 -116 441'158

PARENT BANK 75 Habib Bank AG Zurich

8 Presentation of the Bank's capital

31.12.19 31.12.18 Capital Capital Total No. of eligible for Total No. of eligible for in CHF 1'000 par value shares dividend par value shares dividend Bank's capital 150'000 1'500'000 150'000 150'000 1'500'000 150'000 - of which paid up Total Bank's capital 150'000 1'500'000 150'000 150'000 1'500'000 150'000

9 Disclosure of holders of significant participations

31.12.19 31.12.18 in CHF 1'000 Nominal % of equity Nominal % of equity Holders of significant participations and groups of holders of participations with pooled voting rights with voting rights Gefan Finanz AG, Zug 150'000 100% 150'000 100%

without voting rights

Beneficial holdings: Gefan Finanz AG is 100% owned by a trust structure, which represents in equal shares the four branches of the Mohamedali Habib Family. No individual has a beneficial interest of 10% or more in the shares of Habib Bank AG Zurich.

10 Disclosure of own shares and composition of equity capital

in CHF 1'000 31.12.19 31.12.18 +/- % Reserves for general banking risks 441'158 441'273 0.0% Bank's capital 150'000 150'000 0.0% Statutory retained earnings reserve 81'850 80'550 1.6% Voluntary retained earnings reserve 246'449 233'166 5.7% Profit carried forward 14'096 89 Profit 43'571 43'307 0.6% Total equity 977'123 948'385 3.0%

The Parent Bank does not hold any of its own shares. The statutory retained earnings reserve cannot be distributed.

76 PARENT BANK Habib Bank AG Zurich

11 Amounts due from / to related parties

Amounts due from Amounts due to in CHF 1'000 31.12.19 31.12.18 31.12.19 31.12.18 Holders of qualified participations 108'500 104'157 Group companies 40'073 59'309 11'599 12'147 Linked companies Transactions with members of governing bodies 1'632 2'146 7'938 15'844 Total 41'705 61'455 128'036 132'148

12 Breakdown of total assets by credit rating of regions (risk domicile principle)

Net foreign exposures Net foreign exposures 31.12.19 31.12.18 Standard & Poor's rating in CHF 1'000 Shares as % in CHF 1'000 Shares as % AAA 252'343 6.2% 352'507 8.8% AA+ to AA- 636'957 15.7% 603'432 15.1% A+ to A- 2'461'202 60.5% 2'379'872 59.6% BBB+ to BBB- 73'842 1.8% 81'771 2.1% BB+ to B- 607'512 14.9% 530'157 13.3% CCC Unrated 34'896 0.9% 42'795 1.1% Total 4'066'752 100.0% 3'990'533 100.0%

Rating category is based on the sovereign foreign currency long-term rating system from S&P.

PARENT BANK 77 Habib Bank AG Zurich

Information on the off-balance sheet transactions

13 Breakdown of credit commitments

in CHF 1'000 31.12.19 31.12.18 +/- % Commitments arising from acceptances 20'507 12'013 70.7% Other credit commitments 12'872 7'142 80.2% Total credit commitments 33'379 19'155 74.3%

14 Breakdown of fiduciary transactions

in CHF 1'000 31.12.19 31.12.18 +/- % Fiduciary investments with third-party companies 317'241 252'780 25.5% Fiduciary investments with Group companies and affiliated companies Fiduciary loans 2'498 2'648 -5.7% Total fiduciary transactions 319'740 255'428 25.2%

78 PARENT BANK Habib Bank AG Zurich

Information on the income statement

15 Breakdown of the result from trading activities and the fair value option

in CHF 1'000 2019 2018 +/- % Result from trading activities from Interest rate instruments (incl. funds) 29 7 308.8% Unrealised forex gains / (losses) on reserves held in foreign currencies -7'070 3'656 -293.4% Foreign exchange 9'132 9'105 0.3% Total result from trading activities 2'091 12'768 -83.6% - of which from the fair value option on assets 29 7 308.8%

16 Breakdown of personnel expenses

in CHF 1'000 2019 2018 +/- % Salaries and additional allowances -56'046 -48'578 15.4% - of which expenses related to share-based compensation and alternative forms of variable compensation Social insurance obligations -6'067 -5'381 12.8% Other personnel expenses -3'054 -2'267 34.7% Total personnel expenses -65'167 -56'226 15.9%

17 Breakdown of general and administrative expenses

in CHF 1'000 2019 2018 +/- % Office space expenses -7'388 -7'226 2.2% Expenses for information technology and telecommunications -8'829 -5'930 48.9% Expenses for motor vehicles, machinery, furniture and other equipment and operating lease expenses -519 -415 25.0% Fees of audit firm(s) -1'161 -1'372 -15.4% - of which for financial and regulatory audits -833 -1'185 -29.7% - of which for other services -328 -186 75.8% Other operating expenses -24'896 -31'962 -22.1% Total general and administrative expenses -42'793 -46'905 -8.8%

PARENT BANK 79 Habib Bank AG Zurich

18 Analysis of extraordinary income and expenses

in CHF 1'000 2019 2018 +/- % Extraordinary income Profit on sale of fixed assets 8 22 -65.8% Recoveries and others 467 111 321.1% Total extraordinary income 475 133 257.1%

Extraordinary expenses Other -4 -33 -88.4% Total extraordinary expenses -4 -33 -88.4%

19 Presentation of current taxes, deferred taxes and disclosure of the tax rate

in CHF 1'000 2019 2018 +/- % Current tax expenses * -13'812 -15'134 -8.7% Deferred tax expenses 877 1'124 -22.0% Total taxes -12'935 -14'010 -7.7%

Weighted average tax rate (on profit before taxes) 21.3% 26.0%

* The impact of changes in losses carried forward on income taxes (e.g. occurrence, use, reassessment, expiry) resulted in 2.5% higher income taxes for the period.

80 PARENT BANK Habib Bank AG Zurich

Waterfall Kilt Rock, Isle of Skye, Scotland, UK PARENT BANK 81 Habib Bank AG Zurich

Report of the Statutory Auditor

To the General Meeting of Habib Bank AG Zurich Zurich

Report of the Statutory Auditor on the Financial Statements

As statutory auditor, we have audited the accompanying financial statements of Habib Bank AG Zurich, which comprise the balance sheet, income statement, statement of changes in equity and notes (pages 62 to 80 of the annual report) for the year ended 31 December 2019.

Board of Directors' Responsibility The Board of Directors is responsible for the preparation of the financial statements that give a true and fair view in accordance with the provisions governing the preparation of financial statements for Banks, the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements for the year ended 31 December 2019 give a true and fair view of the financial position and the results of operations in accordance with the provisions governing the preparation of financial statements for Banks and comply with Swiss law and the company’s articles of incorporation.

Report on Other Legal Requirements

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

KPMG AG

Ertugrul Tüfekçi Mirko Liberto Licensed Audit Expert Licensed Audit Expert Auditor in Charge

Zurich, 29 April 2020

82 PARENT BANK Habib Bank AG Zurich

Addresses

Head Office and operation

Habib Bank AG Zurich Weinbergstrasse 59, PO Box 225 8042 Zurich / Switzerland Telephone: (+4144) 269 45 00 Email: [email protected]

Branches

United Arab Emirates Habib Bank AG Zurich Umm Al Sheif Sheikh Zayed Road P.O. Box 3306 Dubai / UAE Telephone: (+9714) 373 5200 Email: [email protected]

Kenya Habib Bank AG Zurich Habib House Koinange Street P.O. Box 30584, 00100 GPO Nairobi / Kenya Telephone: (+25420) 334 1172 / 76 / 77 Email: [email protected]

Subsidiaries

Habib Canadian Bank Habib Canadian Bank Canada 918 Dundas Street East Suite 400 Mississauga, Ontario L4Y 4H9 / Canada Telephone: +1 (905) 276 5300 Email: [email protected]

HBZ Bank Ltd. HBZ Bank Ltd. South Africa 135 Jan Hofmeyr Road P.O. Box 1536, Westville Wandsbeck 3631 / South Africa Telephone: (+2731) 267 4400 Email: [email protected]

83 Habib Bank AG Zurich

Subsidiaries

HBZ Services FZ LLC HBZ Services FZ LLC United Arab Emirates Dubai Outsource Zone PO Box 186997 Dubai / UAE Telephone: (+9714) 387 07 00

Habib Metropolitan Bank Ltd. Habib Metropolitan Bank Ltd. Pakistan HBZ Plaza, 4th Floor I.I. Chundrigar Road Karachi-74200 / Pakistan Telephone: (+9221) 322 74 879 Email: [email protected]

Habib Bank Zurich (Hong Kong) Ltd. Habib Bank Zurich (Hong Kong) Ltd. Hong Kong 1701-05, 17 / F, Wing On House 71, Des Voeux Road Central Hong Kong Telephone: (+852) 2906 1818 Email: [email protected]

Habib Bank Zurich Plc Habib Bank Zurich Plc United Kingdom Habib House 42 Moorgate London EC2R 6JJ / UK Telephone: (+44207) 452 0200 Email: [email protected]

Representative offices

Bangladesh Habib Bank AG Zurich BDBL Bhaban 12 Kawran Bazar C/A Dhaka 1215 / Bangladesh Telephone: (+880) 2 550 13463 Email: [email protected]

Hong Kong Habib Bank AG Zurich 1701-05, 17 / F, Wing On House 71 Des Voeux Road Central Hong Kong Telephone: (+852) 2906 1818 Email: [email protected]

84 Habib Bank AG Zurich

Pakistan Habib Bank AG Zurich HBZ Plaza, 4th Floor I.I. Chundrigar Road Karachi-74200 / Pakistan Telephone: (+9221) 322 74 879 Email: [email protected]

China Habib Bank AG Zurich Unit 2303B, Jin Mao Tower 88 Century Boulevard / Pudong New District Shanghai 200120, P.R.C. / China Telephone: (+8621) 6890 2193 Email: [email protected]

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